<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934, for the Fiscal Year Ended December 31, 1997.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934, for the transition period from ___ to ___
Commission File Number 0-497
New Mexico and Arizona Land Company
(Exact name of registrant as specified in its charter)
Arizona 43-0433090
(State of incorporation) (I.R.S. Employer Identification No.)
3033 North 44th Street, Suite 270, Phoenix, Arizona 85018
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 602/952-8836
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class: Common stock, no par value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months, or for such shorter period that the registrant was
required to file such reports, and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ].
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 3, 1998 was approximately $18,068,000 based upon the
closing price on the American Stock Exchange of $13.125 per share on such date.
For purposes of this disclosure, shares held by persons who hold more than 5% of
the outstanding shares of Common Stock and shares held by officers and directors
of the Registrant have been excluded because such persons may be deemed to be
affiliates. This determination is not necessarily conclusive.
The number of the Registrant's Common Stock outstanding as of March 3, 1998 was
3,847,982 shares.
Documents Incorporated by Reference: Part III of the Form 10-K incorporates by
reference certain portions of the registrant's definitive proxy statement for
the 1998 Annual Meeting of Shareholders.
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PART I
ITEM 1: BUSINESS
BUSINESS OVERVIEW
New Mexico and Arizona Land Company (the "Company" or "NZ") was
organized in 1908 as an Arizona corporation. The Company has 25 full-time
employees and conducts business in Arizona, Colorado, New Mexico, and Oklahoma.
The Company has five wholly-owned subsidiaries: NZ Development Corporation, NZ
Properties, Inc., NZU Inc., Bridge Financial Corporation and Great Vacations
International, Inc. The Company owns various urban and rural real estate
properties as well as extensive mineral rights. In 1997, the Company entered the
specialty real estate lending business.
This document may contain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Act of 1934. Such forward-looking statements involve risks and uncertainties
which could cause actual results or outcomes to differ materially from those
expressed in such forward-looking statements. See "Significant Activities" in
this Item 1 - "Business", and Item 7 - "Management's Discussion and Analysis of
Financial Condition and Results of Operations" for a discussion of important
factors that could cause actual results to differ from the forward-looking
statements.
SIGNIFICANT ACTIVITIES
REAL ESTATE
ARIZONA. In 1995, the Company, through a wholly-owned limited liability
company, entered into a partnership (the "Partnership") to purchase 132
undeveloped acres located near Sedona, Arizona (the "Sedona Project").
Development plans include an 18-hole golf course and 300 two-bedroom timeshare
units. Architectural design, engineering work, and construction plans are
complete. Construction drawings for the golf course have been finalized,
including engineering of the irrigation and water distribution system. The
revised master plan of the Sedona Project has been approved by planning and
zoning authorities of Yavapai County. The Company has a 93% ownership interest
in the partnership and is the managing partner. The Company initially had a 90%
ownership interest and was not the managing partner, but assumed management
control during 1996 pursuant to the terms of the partnership agreement. The
Company's ownership percentage has increased due to the Company continuing to
fund development costs for the Sedona Project, while the Company's partner has
not made its pro-rata contribution for such costs. In 1996, a dispute arose
between the Company and its partner concerning certain aspects of the
Partnership and the Sedona Project. In 1997, the Company's partner filed a
lawsuit with respect to the prior disagreements regarding the partner's
performance and "earn-up" potential in the project. See Item 3 - "Legal
Proceedings" for more information regarding the lawsuit. This dispute and
litigation slowed the pace of the Sedona Project and eventually caused active
development to be temporarily suspended in late 1997.
In conjunction with the Sedona Project, the Company formed a
wholly-
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owned subsidiary, Great Vacations International, Inc., to market the
timeshare units. Great Vacations International, Inc. is presently dormant
pending the outcome of the dispute between the Company and its partner and the
resumption of active development work. The Company continues to evaluate
development and marketing strategies for the entire Sedona Project, including
finding a joint venture partner which could add value by providing development
capital and expertise in the timeshare industry.
In 1996, NZ purchased a parcel of land, totaling 635 acres, located
near Cottonwood, Arizona, which is zoned for the development of residential
lots. This property is currently in escrow to be sold.
The Company has recreational land sales programs in which land is sold
primarily in 40-acre parcels. The southern Arizona program sold 2,065 acres from
1993 through 1996. All of this land was sold by December 31, 1996. The
northeastern Arizona program was initiated in 1980 and over the last 16 years
has sold some 77,000 acres of NZ's rural land. As of December 31, 1997, this
program had approximately 2,180 acres remaining in inventory to be sold. All the
parcels in both programs are or were typically sold on installment contracts,
with 10 to 20% down payments with the balance of the contract carried over 15
years.
The Company still owns over 150,000 acres of rural land located in
northeastern Arizona and New Mexico which were derived from 19th century
railroad land grants. The Company is currently evaluating whether a 40-acre
parcel sales program or bulk sales opportunities will provide the greatest value
to shareholders over the long term.
COLORADO. In 1996, NZ purchased an approximate 10,000 acre ranch
located in Fremont County, Colorado. This property contains a sizeable uranium
deposit, which is discussed further under "Minerals". This property is suitable
for subdivision into recreational lots, among other uses. The surface rights on
this property are listed for sale. A contract for the sale of approximately
2,800 such acres is currently being negotiated.
NEW MEXICO. The Company owns a 75% interest in two joint ventures
located in Albuquerque, New Mexico. One of the joint ventures, Brown/NZD
(Development) Joint Venture ("7-Bar") develops and sells residential lots to
home builders. In 1997 and 1996, 117 and 145 lots were sold respectively by the
joint venture. The joint venture had 99 finished lots in inventory as of
December 31, 1997. All of those lots are under contract to local builders. The
Venture has about 238 lots remaining to be developed.
The other joint venture, Brown/NZ (Investment) Joint Venture, holds
approximately 8 acres that will be developed into lots.
During 1997, the Company sold its 75% interest in a third
joint-venture, Manzano Mesa Limited Partnership ("MMLP"). MMLP develops and
sells residential lots to home builders. The Company sold its interest because
the project was not meeting the Company's performance expectations. The venture
interest was sold for a pre-tax gain of $257,000.
Also in New Mexico, NZ owns and operates four apartment complexes,
totaling 342 units, located in four New Mexico communities. These units have
federally-subsidized rent contracts designed for the elderly or handicapped.
They maintain essentially full occupancy. These apartments are currently listed
for sale and as of March 10, 1998 a contract is being negotiated with a
potential purchaser of the apartment complexes.
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TEXAS. In 1995, the Company purchased a majority interest in a limited
liability company, Texas Elm Fork Land Co., L.C. ("Elm Fork"), that had a 20
year lease with the University of Dallas (the "University") on 160 acres in
Irving, Texas. Although the University had represented ownership of the entire
parcel, they did not own a key 3 acre parcel bisecting the property. To protect
its interests, Elm Fork commenced litigation against the University in 1996. In
1997 Elm Fork was compensated for its damages and recovered its investment in a
confidential out-of court settlement with the University.
MINERALS
NZ owns over one million acres of mineral rights in Arizona and New
Mexico which originated, like the rural lands, from 19th century railroad land
grants. The Company also owns mineral rights in Colorado and Oklahoma, including
a royalty interest in a dozen producing oil and gas wells.
In New Mexico, NZU, Inc. ("NZU"), a wholly-owned subsidiary, owns the
mineral rights to two delineated deposits of uranium, the Crownpoint and Crown
Mesa deposits. The Crownpoint deposit is leased to a uranium production company.
The lease provides for NZU to receive a production royalty payment of 10% of
gross revenues, or product in-kind, at NZU's discretion. Production from this
deposit is not expected for several years regardless of market conditions. Under
current market conditions, production is not presently economically feasible.
NZU is also working on access, design, and permitting issues associated
with development of a solution mine on the Crown Mesa deposit. The permitting
process could take several years once baseline data is complete. Under current
market conditions, production is not presently economically feasible.
In 1996, the Company acquired an approximate 10,000 acre ranch located
in Fremont County, Colorado that contains a sizeable and well defined uranium
deposit known as the Hansen Orebody. NZU is researching various mining
strategies to mine the Hansen deposit. Under current market conditions,
production is not presently economically feasible
In addition, the Company previously identified a large deposit of
industrial grade limestone on its fee lands in New Mexico. The Company has
leased this land to an operator who may mine the limestone. In addition to
annual rental payments, the lease provides for royalty payments should this
limestone ever be mined. During 1997 the lessee produced a small test batch. The
results of the test are not yet known.
Revenue received from all of the Company's mineral activities does not
constitute a material portion of the Company's consolidated revenue.
SPECIALTY REAL ESTATE LENDING
In 1997, the Company formed a new wholly-owned subsidiary, Bridge
Financial Corporation ("Bridge" or "BFC"), which acquired a portfolio of
commercial real estate loans from RRH Financial ("RRH"). Through BFC, the
Company participates in the commercial real estate lending business by providing
short-term gap and participating loans to qualified borrowers who provide
suitable real estate projects as collateral. (See Item 7 - "Management's
Discussion and Analysis - New Business Activity and Change of Principal Business
Emphasis").
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Bridge acquired from RRH a portfolio of loans under management valued
at $24.6 million of which $16.6 million was participated with other lenders. The
remaining non-participated balance of $7.6 million(net of undisbursed loan
proceeds of $.4 million)was the amount recorded by the Company and included,
together with new loans, in "Commercial real estate loans, net" in the
accompanying consolidated balance sheet of the Company at December 31, 1997 (See
Item 8 - "Financial Statements and Supplementary Data"). At year-end the Company
transferred substantially all loans receivable secured by real estate on its
books to BFC. This was done to concentrate all significant lending operations in
BFC. This transfer, together with new loan originations, provided Bridge with a
1997 year-end portfolio under management of approximately $34.0 million, of
which $17.8 million was participated and $15.3 million (net of an allowance for
bad debts of $.3 million and undisbursed loan proceeds of $.6 million) is
included in "Commercial real estate loans, net" in the Company's 1997 year-end
consolidated balance sheet. As of March 19,1998, Bridge has a loan portfolio
under management of $52.5 million, of which $31.7 million is participated and
$19.9 million(net of an allowance for bad debts of $.3 million and undisbursed
loan proceeds of $.6 million) is recorded in the Company's books.
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ITEM 2: PROPERTIES
The following are schedules of properties owned by the Company at
December 31, 1997:
<TABLE>
<CAPTION>
Year
acquired/ Encumbrance
Location Description developed (in thousands)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
RENTAL PROPERTIES
ARIZONA
Tempe 12th Place Building
37,908-square foot building
on 2.7 acres 1983 $ 788
Tempe Grove Commons Industrial Park
113,730 square foot building
on 7.13 acres (partially completed) 1997-1998 --
NEW MEXICO
Albuquerque Brentwood Gardens Apartments(6)
122-unit complex on 7.5 acres 1985 2,865
Airpark Building(1)(7)
40,000-square foot office
building on 2.5 acres 1985-1986 --
Farmington Apple Ridge Apartments(6)
80-unit complex on 5.7 acres 1985 1,894
Las Cruces Montana Meadows Apartments(6)
80-unit complex on 6.1 acres 1985 1,797
Roswell Wildewood Apartments(6)
60-unit complex on 4.3 acres 1985 1,295
PROPERTIES UNDER DEVELOPMENT
ARIZONA
Sedona Rancho del Oro Development Joint Venture(2)(4)(5)
Timeshare/golf course development
(Seven Canyons of Sedona)planned for
300 timeshare units and an 18-hole
golf course. Design, engineering and
construction plans are complete.
Golf course construction drawings are
finalized. Entitlements have been
perfected with Yavapai County. 1995-2008 --
NEW MEXICO
Albuquerque Brown/NZD (Development) Joint Venture(3) Residential
lot development (Seven Bar North) 903 lots planned,
238 lots remain to be developed. At year end there
were 99 finished lots in inventory, all
of which were under contract. 1995-1999 $735
</TABLE>
(1) The property is owned by a general partnership of which the Company owns
50%.
(2) The property is owned by a general partnership of which the Company owns
93%.
(3) The property is owned by a general partnership of which the Company owns
75%.
(4) See Item 3 - "Legal Proceedings" for more information.
(5) Includes 4.6 acres owned by the Company outside of the partnership.
(6) This property is for sale. As of March 25,1998 a contract is being
negotiated with a possible buyer.
(7) This property is in escrow to be sold.
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<TABLE>
<CAPTION>
Year Encumbrance
Location Description acquired Acres (in thousands)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UNDEVELOPED URBAN PROPERTIES
ARIZONA
Gilbert Cooper and Warner Roads 1986 11.95 $ 332
Mesa Greenfield Road and Dorsey Lane 1989 56.74 --
Chandler Ray and McClintock Roads 1986 14.66 51
Scottsdale Carefree Highway and 104th Street(2) 1995 107.91 419
Green Valley Continental and Frontage Roads 1986 6.50 --
Cottonwood Near Cottonwood Airport(2) 1996 635.00 2,287
Flagstaff Zuni and Walapai Streets(2) 1981 10.00 --
NEW MEXICO
Albuquerque Menaul and Broadway Roads 1986 17.70 --
Albuquerque Spain Road and Juan Tabo Blvd.(2) 1985 5.89 --
Albuquerque Seven Bar Loop and Ellison Roads(1) 1993 7.90 --
Las Cruces Mesilla Hills 1990 309.96 --
</TABLE>
(1) Owned by a general partnership of which the Company owns 75%.
(2) This property is in escrow to be sold.
RURAL AND MINERAL PROPERTIES
<TABLE>
<CAPTION>
Acres
---------------
Encumbrance
County State Surface Mineral (in thousands)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Apache Arizona 75,688 146,600 $ --
Coconino Arizona 21,191 --
Mohave Arizona 46,602 --
Navajo Arizona 80,467 474,966 --
Catron New Mexico 11,346 --
Cibola New Mexico 5,312 225,185 --
McKinley New Mexico 160 117,238 40
San Juan New Mexico 5,040 --
Socorro New Mexico 2,399 --
Valencia New Mexico 43,285 --
Fremont Colorado 9,889(1) 4,565 --
Various Oklahoma 337 --
</TABLE>
(1) A contract for the sale of approximately 2,800 acres of this property is
being negotiated.
The Company is lessor on grazing and mineral leases covering
approximately 158,000 and 6,060 acres, respectively, and owns working interests
in various oil and gas joint ventures located in New Mexico, acquired from 1986
through 1988.
The Company's executive offices occupy approximately 3,340 square feet
in an office building in Phoenix, Arizona pursuant to a lease agreement with an
initial term expiring in March, 2000.
ITEM 3: LEGAL PROCEEDINGS
The Company is a party to various legal proceedings arising in the
ordinary course of business. While it is not feasible to predict the ultimate
disposition of these matters, it is the opinion of management that their outcome
will not have a material adverse effect on the financial
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condition of the Company.
In addition to routine legal matters, the Company is involved in a
lawsuit concerning the Sedona Project. Sedona Creekside No. 2, L.L.C. ("SC 2"),
the Company's minority partner in the Sedona Project, was named, together with
certain of its affiliates and principals, as a defendant in a lawsuit filed in
the Superior Court of Maricopa County, Arizona on June 16,1997 by Richard T.
Sonberg, et al., to whom SC 2 and certain of its principals and or affiliates
were allegedly indebted. Sonberg seeks, among other relief, to foreclose on a
collateral assignment of SC 2's partnership interest in Rancho del Oro
Development Joint Venture ("RDO"), which was allegedly given by SC 2 as security
for the debt. RDO is the partnership through which the Company, by its
subsidiary NZ Development II, L.L.C. ("NZD II"), is developing the Sedona
Project. The Company was given permission to intervene as a defendant in this
lawsuit in order to attempt to prevent the foreclosure of the assignment,
because the terms of the RDO partnership agreement expressly prohibit such
assignments and the Company did not want to be forced to accept a new partner.
On November 10, 1997, SC 2 filed a crossclaim against the Company, and
added as crossdefendants certain directors and an officer of the Company. The
crossclaim relates to a dispute between the Company and SC 2 concerning the
prior removal of SC 2 as managing partner of RDO. The crossclaim against the
Company and the individuals includes counts for breach of contract, an
accounting, declaratory judgment, and injunction. The Company and the individual
defendants have filed a countercrossclaim against SC2, including counts for
breach of contract, breach of fiduciary duty, fraud, violation of Arizona RICO,
declaratory judgment, and injunction. The Company believes that the claims in
the lawsuit against the Company and the individual defendants are without merit
and the Company intends to vigorously defend against the allegations made and to
vigorously pursue the countercrossclaim.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of 1997.
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PART II
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There were 3,847,982 shares of the Company's no par value common stock
("Common Stock") issued and outstanding at December 31, 1997. The Common Stock
is traded on the American Stock Exchange under the symbol "NZ". Shareholders of
record at February 3, 1998, totaled 801. The Board of Directors declared a 10%
stock dividend on May 16, 1997 and on May 20, 1996, with payments made on July
18, 1997 and July 18, 1996, respectively.
The Company has authority to issue up to 10,000,000 shares of serial
preferred stock. At December 31, 1997, no preferred shares were issued.
The following table sets forth, for the periods indicated, the high and
low closing price of Common Stock as reported by the American Stock Exchange.
THE MARKET PRICE RANGE BY QUARTER:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
1997 1996
HIGH LOW High Low
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1st quarter $15 5/8 $10 1/4 $18 $11 5/8
2nd quarter 14 3/4 11 15/16 16 1/2 12 1/2
3rd quarter 17 5/8 13 1/4 14 11 1/2
4th quarter 16 1/2 13 7/8 13 3/4 11
</TABLE>
ITEM 6: SELECTED FINANCIAL DATA
Years ended December 31,
(in thousands, except per share, shareholder,
and employee data)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Gross revenue from
operations $16,904 $23,660 $22,062 $21,440 $10,337
Net income 2,340 4,846 5,500 3,936 1,282
Income per share(1)
Basic 0.69 1.46 1.67 1.19 0.39
Diluted 0.69 1.46 1.67 1.19 0.39
SUMMARY OF FINANCIAL POSITION:
Total assets $69,511 $66,328 $57,682 $52,307 $46,622
Notes payable and lines
of credit 12,503 16,036 14,080 14,546 15,268
Shareholders' equity 43,466 35,628 30,721 25,127 21,153
OTHER SUPPLEMENTAL INFORMATION:
Weighted average number of
common shares outstanding(1)
Basic 3,394 3,309 3,302 3,302 3,302
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C> <C>
Diluted 3,394 3,309 3,302 3,302 3,302
Number of shareholders
of record 805 847 887 925 970
Number of full time employees 25 24 21 19 19
</TABLE>
(1) Prior years restated to reflect a 10% stock dividend paid July 18, 1997.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
NEW BUSINESS ACTIVITY AND CHANGE OF PRINCIPAL BUSINESS EMPHASIS
In 1997, the Company formed a new wholly-owned subsidiary, Bridge
Financial Corporation ("Bridge" or "BFC"), which acquired a portfolio of
commercial real estate loans from RRH Financial ("RRH"). Through BFC, the
Company participates in the commercial real estate lending business by providing
short-term gap and participating loans to qualified borrowers who provide
suitable real estate projects as collateral.
Bridge acquired from RRH a portfolio of loans under management valued
at $24.6 million, of which $16.6 million was participated with other lenders.
The remaining non-participated balance of $7.6 million(net of undisbursed loan
proceeds of $.4 million) was the amount recorded by the Company and included,
together with new loans, in "Commercial real estate loans, net" in the
accompanying consolidated 1997 balance sheet of the Company. At year-end 1997,
the Company transferred substantially all loans receivable secured by real
estate on its books to BFC. This was done to concentrate all significant lending
in BFC. This transfer, together with new loan originations, provided Bridge with
a 1997 year-end loan portfolio under management of approximately $34.0 million,
of which $17.8 million was participated and $15.3 million (net of an allowance
for bad debts of $.3 million and undisbursed loan proceeds of $.6 million) is
included in "Commercial real estate loans, net" in the Company's 1997 year-end
consolidated balance sheet. As of March 19,1998, Bridge has a loan portfolio
under management of $52.5 million, of which $31.7 million is participated and
$19.9 million(net of an allowance for bad debts of $.3 million and undisbursed
loan proceeds of $.6 million) is recorded in the Company's books.
Real estate lending as a principal business focus marks a new direction
for the Company. Historically, the Company has been a real estate lender to some
extent, but that lending was incidental to and in conjunction with the Company's
real estate development and sales business. The Company's management believes,
however, that an under-served niche exists in the real estate lending industry
which merits the devotion of substantial Company resources. This niche, on which
Bridge will focus, consists of successful small to medium sized developers and
others in the real estate business with a need to borrow $500,000 to $5,000,000
on a short-term basis, secured by a low-ratio mortgage (typically a mortgage
loan which is 65% or less than the value of the property mortgaged) on
commercial real estate. By providing a quick, responsive service management
believes that BFC will be able to earn a premium return on loans it extends to
these borrowers while maintaining a low-to-moderate risk profile. The key
reasons management believes it will be able provide a superior level of service
and to be successful in this niche are that over time management expects the
Company to be able to secure lower cost and more consistent capital sources than
other, smaller lenders that operate in this segment of the lending industry, and
management expects to be able to maintain lower levels of general and
administrative expense compared
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to other larger competitors.
Management expects the lending business to provide more stable earnings
patterns for the Company when compared to the Company's historical pattern. This
is because the earnings pattern in the real estate development and sales
industry is very dependent upon the occurrence of large and sometimes isolated
transactions, which are not readily predictable. Furthermore, an increase in
real estate assets does not necessarily translate into a concurrent increase in
revenue or earnings; such increases are often deferred until the asset is
liquidated. The lending business is, on the other hand, more likely to have a
predictable stream of interest income from a portfolio of assets. The assets
begin to contribute to earnings immediately upon acquisition; consequently loan
portfolio growth has a direct and immediate impact on earnings.
It is management's intention to shift the Company's principal business
focus away from real estate development and sales and toward commercial real
estate lending. Most of the Company's real estate assets are either in escrow or
are being actively marketed for sale. (See Item 2 - "Properties"). A large
number of these sales are expected to close within the next 12 to 18 months,
creating cash for re-investment. As these assets are sold, management intends to
invest the proceeds principally in the real estate lending business. However,
since for Federal income tax purposes the Company has a very low basis in many
of its properties, management may opt to defer payment of income tax upon the
sale of such properties by exchanging the property for other income or
development property. The apportionment of the proceeds from sale of property
between investment in BFC and investment in other real estate will be determined
case by case, based primarily on the amount of income tax liability and the
Company's cash needs, considered together with other business factors.
The formation of BFC and the acquisition of a loan portfolio from RRH
occurred late in the 1997 fiscal year. Consequently, the contribution of BFC to
the earnings of the Company for 1997 are not material. Management believes that
the contribution to be made by BFC to the Company's results of operations in
future time periods will be material. Because of the anticipated increasing
materiality of the BFC activity, management believes that the results of
operations and other financial information presented for 1997 and prior years
may not be indicative of the operating results for years subsequent to 1997.
RESULTS OF OPERATIONS
The following table summarizes the Company's revenues and earnings for
the indicated periods:
<TABLE>
<CAPTION>
Fiscal Years Ended December 31:
(in thousands, except share data) 1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Revenue $16,904 $23,660 $22,062
Earnings per share of common stock(1)
Basic $ 0.69 $ 1.46 $ 1.67
Diluted $ 0.69 $ 1.46 $ 1.67
</TABLE>
(1) Prior years restated to reflect a 10% stock dividend paid July 18, 1997.
YEAR ENDED DECEMBER 31, 1997 VERSUS YEAR ENDED DECEMBER 31, 1996
Earnings decreased in 1997 by approximately 52%, from $4,846,000 in
1996 to $2,340,000 in 1997. The major reason for the decrease in earnings was
the
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decrease in sales of real estate in fourth quarter 1997 compared to fourth
quarter 1996. The presence of one large transaction which occurred in fourth
quarter 1996, with no comparable transaction in 1997, accounted for
approximately 90% of the decline in earnings and revenue.
Rental properties continued to produce steady gross profits and cash
flows of just under $2,000,000 per year in 1997. The majority of the rental
property cash flow is from the four federally-subsidized apartment complexes
that NZ owns. The subsidy contracts are scheduled to expire; one during fourth
quarter 1998 and the other three in the first half of 1999. The Company believes
that these contracts will be renewed, but that the level of subsidy is likely be
lower than under the current contracts. The Company does not believe that the
expected lower subsidy level will have a significant effect on the Company with
respect to its apartment complex located in Albuquerque; however, the lower
subsidy level could be significant with respect to the Company's apartment
complexes located in other areas of New Mexico. The Company is unable to
determine the precise effect of the renewal rates until certain regulations are
finally promulgated by the Secretary of Housing and Urban Development ("HUD").
All four apartment complexes are currently listed for sale and as of March 10,
1998 a contract is being negotiated.
The 1997 increase in general and administrative expense of $252,000, or
approximately 14%, is due primarily to an increase in personnel costs and other
costs related to the restructuring of the Company's business activity and
personnel to accommodate the integration of Bridge Financial Corporation into
the Company's operations.
YEAR ENDED DECEMBER 31, 1996 VERSUS YEAR ENDED DECEMBER 31, 1995
Although property sales generated about $1,600,000 more in gross profit
in 1996 than in 1995, earnings decreased in 1996 by about 12%, from $5,500,000
in 1995 to $4,846,000 in 1996. The major reason for the decrease in income was
the sale of a note receivable and the sale of a joint venture property that
produced over $2,700,000 in before-tax income in 1995.
Rental properties continued to produce steady gross profits and cash
flows of about $2,000,000 for the 1996 fiscal year. The majority of the cash
flow was from the four federally-subsidized apartment complexes that NZ owns.
The subsidy contracts are scheduled to expire, one at the end of 1998 and the
other three in 1999. As of the end of the 1996 fiscal year it was not possible
to determine whether HUD would renew these contracts. If HUD does not renew the
contracts when they expire, the Company may have to adjust its rental rates. The
Company does not believe that this would have an adverse effect on the Company
with respect to its apartment complex located in Albuquerque; however, the lack
of federal subsidies in the rural areas of New Mexico could have an adverse
effect on the Company.
Investment income decreased by about $400,000. A note receivable was
paid off in 1995, thereby reducing interest income in 1996. Also average cash
available for investment in 1996 was down from 1995, due to the purchase of
properties. The increase in general and administrative expense was due primarily
to an increase in officers' and directors' bonuses of about $145,000 and
increased legal fees.
Cash flow from operating activities increased by over $7,000,000 and
cash flow from investing activities decreased by essentially the same amount.
The Company sold two commercial corners for about $6,300,000 in cash and the
Company purchased two properties, a 10,000 acre ranch in Colorado and a 635 acre
parcel in Arizona.
-12-
<PAGE> 13
Cash on hand at December 31, 1996 was $7,100,000.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital needs have typically been for real estate
development projects and to fund working capital. The sources of these funds
have been internally generated cash from property sales and rental operations,
lines of credit and joint venture financing. Historically, these sources have
been sufficient to meet the Company's needs for cash.
The real estate lending business will require large amounts of capital
in order for the Company to be an effective competitor in the market. Management
estimates that during the 1998 fiscal year, approximately $80 million of
principal will be required to fund anticipated loan volume. In addition, the
Company will require cash for working capital, for continuing development work
on existing real estate projects and for projects that may be acquired through
tax-deferred exchanges. (See "New Business Activity and Change of Principal
Business Emphasis", above.)
The Company expects to generate a substantial amount of cash from the
sale of real estate over the next 12 to 18 months. This cash will be re-deployed
into the lending or development business. Cash will also be generated from
principal repayments on maturing loans in the Company's existing loan portfolio.
In addition, the Company now uses and intends to continue to use participants or
other joint funding sources on certain real estate loans.
The Company currently has a $3 million unsecured revolving line of
credit from a commercial bank, which can be used for general corporate purposes.
The line bears interest at the prime rate and expires in December, 1998. At
December 31, 1997 the entire line was undrawn and available. As of February 27,
1998 the line had an outstanding balance of $2 million. This loan contains
financial covenants which require the Company to maintain a specified minimum
ratio of current assets to current liabilities; a specified minimum excess of
current assets over current liabilities; and a specified maximum ratio of total
liabilities to tangible net worth. At December 31, 1997 the Company was in
compliance with these financial covenants. Negotiations are underway with the
bank to increase the size of the line to $10 million, of which $3 million would
likely continue to be unsecured. The balance would be secured by certain real
estate and loan assets of the Company.
The same commercial bank has made a construction loan to the Company to
finance development of the Grove Commons project. The construction loan is for a
one year term expiring December 31, 1998, and bears interest at the prime rate.
As of December 31, 1997 the loan had a zero balance. As of February 27, 1998 the
loan had an outstanding balance of $513,000. From a different commercial bank,
one of the Albuquerque joint ventures has loan facilities to be utilized for lot
development. At December 31, 1997 the aggregate outstanding balance under these
loan facilities was $735,000. As of February 27, 1998, there was $524,000
borrowed against these lines of credit.
The Company also has $1,000,000 revolving line of credit from a
commercial bank which is secured by certain real estate. The line bears interest
at the prime rate and is scheduled to expire on April 1,1998. The Company does
not intend to renew this line of credit. At December 31, 1997 there was no
amount outstanding on this line.
In addition to bank lines, the Company is engaged in preliminary
discussions with a large non-bank commercial lender to provide a warehouse
- -13-
<PAGE> 14
line of credit and/or joint funding arrangement, either or both of which would
be available to finance the Company's real estate lending activities.
Discussions have not proceeded far enough to characterize any likely loan
agreement, other than to say that it will probably be a secured revolving
facility. The Company expects to negotiate other similar credit facilities
during the 1998 fiscal year. The proceeds of any such facilities would be used
to fund the Company's real estate lending business.
The Company also intends to seek qualified joint venture partners to
finance large real estate development projects. The use of joint venture
partners provides a source of development capital, mitigates the Company's risk
by sharing it with another party, and gives the Company access to expertise that
it might not otherwise have for particular projects.
The principal outcomes of the Company's discussions with potential
lenders will be to determine how rapidly the Company will be able to grow its
new commercial real estate lending business. The terms of any new financing
arrangement will likely have a material effect upon the Company's margins in its
lending business. If the Company is not successful in negotiating such
financing, the principal effect will be a modest growth in the Company's lending
business, with the pace of growth in the near term being determined at least in
significant part by the timing of the Company's sales of existing real estate
assets.
INFLATION, DEFLATION, AND CHANGING PRICES
The results of operations may be affected by inflation, deflation, and
changing prices. Price changes and market trends in real estate, rental rates,
interest rates, oil, gas, and uranium could have significant effects on the
Company's operations. While the Company does not believe such items have had a
material effect on 1997 operations and knows of no conditions which would cause
the Company to believe that such items could have a material effect on 1998
results, changes in prevailing interest rates and real estate values could have
a significant effect on BFC's real estate lending business.
NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards ("SFAS") No. 123 -
"Accounting for Stock-Based Compensation" allows companies to elect to account
for stock-based compensation plans using a method based upon fair value or
continuing to measure compensation expense for those plans using the intrinsic
value method prescribed by Accounting Principles Board ("APB") Opinion No. 25
"Accounting for Stock Issued to Employees". Companies electing to continue to
use the intrinsic value method must make pro-forma disclosures in calendar 1997
of net earnings per share as if the fair value method had been used. The Company
will continue to use the intrinsic value method prescribed by APB 25; therefore
SFAS 123 will have no effect on the Company's results of operations or financial
position.
In February, 1997 the Financial Accounting Standards Board ("FASB")
issued SFAS No. 128, "Earnings per Share," which specifies the computation,
presentation, and disclosure of earnings per share for entities with
publicly-held common stock. This statement is effective for the Company for the
calendar year 1997. This standard requires the presentation of basic and diluted
earnings per share.
In February, 1997 the FASB issued SFAS No. 129, "Disclosure of
Information About Capital Structure" to consolidate existing disclosure
requirements. This statement is effective for the Company for the calendar
-14-
<PAGE> 15
year 1997. This statement contains no change in disclosure requirements for the
Company.
ACCOUNTING STANDARDS NOT YET ADOPTED BY THE COMPANY
The FASB has issued new pronouncements that have not yet been adopted
by the Company.
In June, 1997 the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," to establish standards for reporting and display of comprehensive
income (all changes in equity during a period except those resulting from
investments by and distributions to owners) and its components in financial
statements. This new standard will be effective for the Company for the year
ending December 31, 1998. Based on the current financial structure and
operations of the Company, SFAS No. 130 is not expected to have a significant
impact on the Company's consolidated financial statements.
In June, 1997 the FASB issued SFAS No. 131, "Disclosure About Segments
of an Enterprise and Related Information," to establish standards for reporting
about operating segments in annual financial statements, selected information in
interim financial reports and disclosures about products and services,
geographic areas and major customers. This new standard, which will be effective
for the Company for the year ending December 31, 1998, may require the Company
to report financial information on the basis that is used internally for
evaluating segment performance and deciding how to allocate resources to
segments, which may result in more detailed information in the notes to the
Company's consolidated financial statements than is currently required and
provided.
FACTORS THAT MAY AFFECT FUTURE RESULTS AND FINANCIAL CONDITION
Certain information presented in this Report includes "forward-looking
statements" within the meaning of Federal securities laws. Forward looking
statements involve risks and uncertainties. The Company's actual results could
differ materially from those anticipated in these forward-looking statements as
a result of certain factors, including but not limited to those set forth below,
which may have an effect on the Company's future results and financial
condition.
REAL ESTATE MARKET. The Company will continue to be linked to the
fortunes of the real estate market. A downturn in that market could adversely
affect the Company's performance. The Company is expecting to generate
significant amounts of cash and earnings over the next 12 to 18 months through
the sale of several real estate assets. While the real estate markets are
generally healthy in the areas where the Company currently owns real estate,
there is no assurance that the markets will continue to be favorable over the
disposition period of these assets. A downturn in the real estate market could
have an adverse impact on the Company's ability to sell its real estate assets
at a profit or at all, and an adverse impact on the Company's ability to attract
joint venture funding for any future development projects, including the Sedona
Project. If that were to happen the Company's growth, particularly the growth of
BFC, could be restrained due to a lack of capital. In addition, a downturn in
the real estate market could have an effect on the Company's real estate lending
business. If BFC finds it necessary to foreclose on properties after a default
by a borrower, it is possible that the Company would not, in the short term, be
able to recover its entire investment in the loan. Also, in the past, downturns
in the real estate market have resulted in a higher rate of foreclosures
generally.
-15-
<PAGE> 16
INTEREST RATE FLUCTUATIONS. Changes in interest rates can have a
variety of effects on the Company's commercial real estate lending business. In
particular, changes in interest rates affect the volume of loan originations and
acquisitions, the interest rate spread on loans held for sale, and the amount of
gain or loss on the sale of loans.
During periods of declining interest rates, the Company typically
experiences an increase in demand for loan originations because of increased
commercial real estate development activity.
The Company intends generally to hold loans that it funds in its loan
portfolio, although it may sell participations in its loans to pension funds and
other institutional investors. The Company's net interest income is the
difference between the interest income it earns on loans held in its portfolio
(generally based on long-term interest rates) and the interest it pays on its
borrowings (generally based on short-term interest rates). To the extent
short-term interest rates are lower than long-term interest rates, the Company
earns net interest income from the difference, or the spread, during the time
the mortgage loans are held by the Company. To the extent this spread narrows,
the Company's results of operations could be adversely affected. In addition,
the Company's net interest income will be affected by borrowing costs other than
interest expense associated with its borrowings.
DELINQUENCY, FORECLOSURE AND OTHER CREDIT RISKS; LIABILITIES UNDER
REPRESENTATIONS AND WARRANTIES. Economic downturns can have a negative impact on
a real estate lender's profitability as the frequency of loan defaults tend to
increase. From the time that the Company funds the loans it originates, to the
time the loan is repaid (or is earlier sold by the Company), the Company is
generally at risk for any loan defaults. Once the Company sells the loans it
originates (or sells participations in such loans), the risk of loss from loan
defaults and foreclosures passes to the purchaser of the loans. However, in the
ordinary course of business, the Company makes certain representations and
warranties to the purchasers of loans and to loan participants. These
representations and warranties generally relate to the origination and servicing
of loans. If a loan defaults and there has been a breach of these
representations or warranties, the Company becomes liable for the unpaid
principal and interest on the defaulted loan. In such a case, the Company may be
required to repurchase the loan (or the loan participation) and bear any
subsequent loss on the loan.
LOAN PARTICIPATIONS. Bridge Financial Corporation occasionally retains
only a portion of originated loans in its own portfolio and works with a
participating lender to place the other portion of the loans in the portfolio of
the participating lender. Most of the participations have been with pension
funds who manage significantly larger funds than BFC. The participants typically
take a position senior to the Company's position with respect to payment of the
principal portion of the loans. The participants also typically receive the same
interest income and points as does BFC. BFC normally receives an origination fee
and a servicing fee on the participant's portion of the loan. Generally, by
participating loans BFC is able to originate larger loans than it would normally
originate without participants, but results in the Company assuming a
subordinate position with respect to repayment of principal in relation to the
position of the loan participant.
Loan participants and prospective loan participants may change their
-16-
<PAGE> 17
criteria for participating in loans, they may choose to not participate at all
and they may decide to compete with the Company in certain markets. To the
extent that loan participants and prospective loan participants may change the
way in which they have participated in loans, the Company may be unable to
originate the size of loans it now plans and growth may be slowed.
AVAILABILITY OF FUNDING SOURCES. The Company will require substantial
capital resources to grow its commercial real estate lending business. The
amount of financing available to the Company during the next 6 to 18 months will
have a material effect upon how rapidly the Company will be able to increase its
lending activities.
The Company is currently negotiating with certain lenders to provide a
$25 million revolving warehouse facility. While the Company expects to be able
to obtain financing as its lending arrangements mature, there can be no
assurance that such financing will be obtainable on favorable terms. To the
extent that the Company is not successful in arranging new financing, it may
have to curtail its loan origination activities.
CONCENTRATION OF BUSINESS. A significant portion of the Company's
commercial lending business is conducted in Arizona. At December 31, 1997, all
of the Company's outstanding loans were secured by commercial properties located
in Arizona. Given the concentration of the Company's business in Arizona, there
can be no assurance that the Company's results of operations would not be
adversely affected to the extent Arizona experiences a period of slow or
negative economic growth which results in decreased commercial loan originations
and/or an increase in loan delinquencies and defaults.
COMPETITION. The commercial real estate lending business is highly
competitive. The Company competes with other non-bank lenders, commercial banks,
savings associations, credit unions and other financial institutions in every
aspect of its lending business, including funding loans and acquiring
origination capabilities. The Company competes with financial institutions that
have substantially greater financial resources, greater operating efficiencies
and longer operating histories than the Company. To the extent that market
pricing becomes more aggressive, the Company may be unable to achieve its
planned level of originations.
ABILITY TO ENTER NEW MARKETS. The ability of the Company to make the
transition to the lending business and to grow that business depends to a
significant degree upon management's ability to originate loans in new markets
in the Southwestern United States. This type of market expansion will require,
among other tasks, hiring capable and experienced people, marketing to new
markets, additional underwriting procedures for new markets, determining whether
to open new offices or service the loans from the central Phoenix office, and
holding down overhead to keep the new markets cost effective. Failure to
adequately perform any or all of these tasks effectively could significantly
impair the Company's ability to expand into new markets, and could materially
and adversely effect the Company's business, financial condition and results of
operations.
CONTROL OF COSTS. Cost control is always an important element in
achieving profitable operations and is especially important during
-17-
<PAGE> 18
significant expansions of operations, such as the Company's expansion into its
new commercial real estate lending line of business. Management believes that a
major factor that will allow the Company to effectively compete with larger
financial institutions in the Southwestern United States is its ability to
originate loans at lower overall costs than many of its competitors. The
principal cost categories that must be closely managed are: (1) capital cost and
(2) overhead cost. The ability of management to control these costs is critical
to achieving profitability as it expands into new markets.
DEPENDENCE ON KEY INDIVIDUAL. R. Randy Stolworthy has been the chief
architect of the Company's transition from a real estate business to a lending
business. The Company has no employment agreement with Mr. Stolworthy. If the
Company were to lose Mr. Stolworthy's services for any reason, significant time
and money would be expended to try to identify, recruit and employ replacement
personnel to continue the transition, with no guarantees that such a person
could be found.
YEAR 2000. The Company has developed an internal plan to address the
Year 2000 issue and management believes that the Company is Year 2000 compliant.
The Year 2000 problem is the result of computer programs being written in code
which uses two digits rather than four digits to identify the applicable year.
The Company's total cost of becoming compliant was insignificant. Because the
Company's business operations and related business routines are generally
dependent upon date-specific information, the Company may experience operational
interruptions due to Year 2000 issues if its customers and suppliers are not
Year 2000 compliant. The Company is in the process of communicating with its
significant suppliers and customers to determine the extent to which the Company
may be adversely impacted by those third parties' Year 2000 issues.
-18-
<PAGE> 19
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
New Mexico and Arizona Land Company:
We have audited the accompanying consolidated balance sheets of New
Mexico and Arizona Land Company and subsidiaries as of December 31, 1997 and
1996, and the related consolidated statements of income, cash flows, and
shareholders' equity for each of the years in the three-year period ended
December 31, 1997. In connection with our audits of the consolidated financial
statements, we also have audited financial statement schedules III and IV for
each of the years in the three-year period ended December 31, 1997. These
consolidated financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of New Mexico
and Arizona Land Company and subsidiaries as of December 31, 1997 and 1996, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1997, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedules, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly, in all material respects,
the information set forth therein.
KPMG Peat Marwick LLP
Phoenix, Arizona
February 20, 1998
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<PAGE> 20
New Mexico and Arizona Land Company and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
(in thousands) 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Properties, net $46,853 $47,478
Commercial real estate loans, net 15,287 9,648
Receivables, net 93 200
Investments in joint ventures 411 416
Cash and cash equivalents 6,016 7,142
Other 851 1,444
- ----------------------------------------------------------------------------------------------------------------------------------
Total assets $69,511 $66,328
==================================================================================================================================
Liabilities and Shareholders' Equity
Notes payable and lines of credit $12,503 $16,036
Accounts payable and accrued liabilities 1,646 1,542
Deferred revenue 4,742 5,002
Deferred income taxes 5,361 5,685
- ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 24,252 28,265
- ----------------------------------------------------------------------------------------------------------------------------------
Non-controlling interests 1,793 2,435
- ----------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Preferred stock, no par value; 10,000,000 shares
authorized, none issued
Common stock, no par value; 30,000,000 shares authorized; 3,847,982 and
3,012,886 shares issued and outstanding at December 31,
1997 and 1996, respectively 24,572 14,705
Retained earnings 18,894 20,923
- ----------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 43,466 35,628
- ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $69,511 $66,328
==================================================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
-20-
<PAGE> 21
New Mexico and Arizona Land Company and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31,
(in thousands, except per share data) 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue:
Property sales $12,005 $18,964 $15,910
Property rentals 3,065 3,044 2,989
Commercial real estate lending 159 -- --
Investment income 1,178 1,236 1,678
Other 497 416 1,485
- -----------------------------------------------------------------------------------------------------------------------------------
16,904 23,660 22,062
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses:
Cost of property sales 7,319 10,569 9,159
Property rentals 1,187 1,007 1,089
Commercial real estate lending 58 -- --
General and administrative 2,025 1,773 1,518
Interest 1,020 963 946
Depreciation, depletion and amortization 524 450 487
- -----------------------------------------------------------------------------------------------------------------------------------
12,133 14,762 13,199
Income before joint ventures, non-
controlling interests and income taxes 4,771 8,898 8,863
Gain from joint ventures -- 20 1,582
Non-controlling interests (883) (872) (1,316)
- -----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 3,888 8,046 9,129
Income taxes 1,548 3,200 3,629
- -----------------------------------------------------------------------------------------------------------------------------------
Net Income $ 2,340 $ 4,846 $ 5,500
===================================================================================================================================
Net Income per share of common stock(1)
Basic $ .69 $ 1.46 $ 1.67
===================================================================================================================================
Diluted $ .69 $ 1.46 $ 1.67
===================================================================================================================================
Weighted Average Number of Common Shares(1)
Basic 3,394 3,309 3,302
===================================================================================================================================
Diluted 3,394 3,309 3,302
===================================================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
(1) Prior years restated to reflect a 10% stock dividend paid July 18, 1997.
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<PAGE> 22
New Mexico and Arizona Land Company and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31,
(in thousands) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income $ 2,340 $4,846 $5,500
Gain from sales of investment properties (338) (3,963) (891)
Gain from sale of partnership interest (257) -- --
Non-cash items included above:
Depreciation, depletion and amortization 524 450 487
Deferred revenue (812) (853) (1,234)
Deferred income taxes (324) 1,497 465
Gain from joint ventures -- (20) (1,582)
Non-controlling interests 883 872 1,316
Employee restricted stock plan -- 1 13
Director stock awards 36 65 84
Net change in:
Receivables 107 46 1,279
Commercial real estate loans 1,958 321 325
Properties under development 1,417 (969) (6,789)
Other assets 593 (489) 131
Accounts payable and accrued liabilities 98 538 (1,169)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash flows provided by(used in)operating activities 6,225 2,342 (2,065)
- ------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Additions to properties (4,878) (7,709) (3,635)
Proceeds from sale of properties 2,790 6,040 4,933
Acquisition of commercial real estate loans (1,578) -- --
Distribution from joint ventures 5 13 1,627
Proceeds from sale of partnership interest 895 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash flows provided by(used in)investing activities (2,766) (1,656) 2,925
- ------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Proceeds from debt 1,168 8,615 3,664
Payments of debt (4,701) (6,659) (4,130)
Distribution to non-controlling partners (1,055) (841) (1,443)
Capital contribution by non-controlling partners 3 40 1,239
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash flows provided by(used in)financing activities (4,585) 1,155 (670)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (1,126) 1,841 190
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year 7,142 5,301 5,111
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $6,016 $7,142 $5,301
====================================================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
-22-
<PAGE> 23
New Mexico and Arizona Land Company and Subsidiaries
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Total
Share-
Common stock Treasury stock Retained holders'
(in thousands) Shares Amount Shares Amount earnings Equity
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES AT
DECEMBER 31, 1994 2,480 $ 8,741 12 $(92) $ 16,478 $ 25,127
========================================================================================================================
Net income 5,500 5,500
10% stock dividend 248 2,239 (2,242) (3)
Employee restricted
stock plan 13 13
Director stock award 7 24 (7) 60 84
- ------------------------------------------------------------------------------------------------------------------------
BALANCES AT
DECEMBER 31, 1995 2,735 $11,017 5 $(32) $ 19,736 $ 30,721
========================================================================================================================
Net income 4,846 4,846
10% stock dividend 273 3,622 (5) 32 (3,659) (5)
Employee restricted
stock plan 1 1
Director stock award 5 65 65
- ------------------------------------------------------------------------------------------------------------------------
BALANCES AT
DECEMBER 31, 1996 3,013 $14,705 -- -- $ 20,923 $ 35,628
========================================================================================================================
Net income 2,340 2,340
10% stock dividend 301 4,364 (4,369) (5)
Director stock award 2 36 36
Issue of common stock 532(1) 5,467 5,467
- ------------------------------------------------------------------------------------------------------------------------
BALANCES AT
DECEMBER 31, 1997 3,848 $24,572 -- -- $ 18,894 $ 43,466
========================================================================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
(1) See Note 3 - Commercial real estate loans.
-23-
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES
Nature of Business
New Mexico and Arizona Land Company was organized in 1908 as an Arizona
corporation and is conducting business in Arizona, New Mexico, Colorado, and
Oklahoma. The Company owns and develops urban real estate. The Company also owns
extensive rural real estate and mineral rights. In 1997, the Company began
business in real estate specialty lending. The Company's results of operations
and financial condition can be adversely affected by several factors, including
a downturn in the real estate market, interest rate fluctuations, and
availability of funding sources.
Principles of Consolidation
The consolidated financial statements include the accounts of New
Mexico and Arizona Land Company, its wholly-owned subsidiaries, and
majority-owned partnerships (the "Company"). All material intercompany
transactions have been eliminated in consolidation. Certain financial statement
items from prior years have been reclassified to be consistent with the current
year financial statement presentation.
Properties
Properties are recorded at cost net of valuation allowances.
Depreciation on rental properties is provided over the estimated useful lives of
the assets, ranging from 5 to 35 years, using the straight-line method.
Maintenance and repairs are charged to income as incurred and renewals or
betterments are capitalized.
Investments in Joint Ventures
The Company's investments in joint ventures are accounted for using the
equity method.
Property Sales and Deferred Revenue
Profits on property sales are recognized, subject to the assessment of
collectibility of the related receivables, when the buyer's investment amounts
to at least 20% of the sales price and when development is to commence within a
two year period, or 25% of the sales price on all other sales. In all instances
the buyer remains obligated to increase this investment by a minimum amount
annually. Profits on sales that do not meet these requirements are recognized on
the installment basis provided minimum down payments are received.
Deferred revenue consists principally of land sales recorded on the
installment basis and rents collected in advance. Rents collected in advance
represent annual rental payments made in advance of the lease year and are
considered earned ratably over the lease year for financial statement purposes.
-24-
<PAGE> 25
Income Taxes
The Company follows Statement of Financial Accounting Standards
("SFAS") No.109, Accounting for Income Taxes. Under the asset and liability
method of SFAS No. 109, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
Income Per Share
Basic income per share is computed by dividing the income available to
common shareholders by the weighted average number of common shares outstanding
for the period. Diluted income per share reflects the potential dilution that
could occur if securities or contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the income of the Company. There were no securities or other
instruments outstanding which could have been converted into common stock as of
the end of each of the years ended December 31, 1997, 1996, and 1995. Diluted
income per share and basic income per share are therefore the same for each of
the years specified.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, cash held in trust,
money market accounts, and temporary investments, with an original maturity of
three months or less.
Fair Value of Financial Instruments
SFAS No. 107, Disclosures about Fair Value of Financial Instruments,
requires that a company disclose estimated fair values for its financial
instruments. The carrying amounts of the Company's commercial real estate loans
and notes payable and lines of credit approximate the estimated fair value
because they are at interest rates comparable to market rates, given the terms
and maturities. The carrying amounts of the Company's cash equivalents,
receivables, accounts payable and accrued liabilities approximate the fair value
of these instruments due to their short term maturities. Considerable judgement
is required in interpreting market data to develop the estimates of fair value.
Accordingly, these fair value estimates are not necessarily indicative of the
amounts the Company might pay or receive in actual market transactions.
Commercial Real Estate Loans
These loans are recorded at cost, less an allowance for bad debts and
undisbursed loan proceeds. Management, considering current information and
events regarding the borrowers' ability to repay their obligations, considers a
loan to be impaired when it is probable that the Company will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. When a loan is considered to be impaired, the amount of the
impairment is measured based on the present value of expected future cash flows
discounted
-25-
<PAGE> 26
at the loan's effective interest rate. Impairment losses are included in the
allowance for doubtful accounts through a charge to bad debt expense. Cash
receipts on impaired loans are applied to reduce the principal amount of such
loans until the principal has been recovered and are recognized as interest
income thereafter.
Impairment of Long-lived Assets and Long-lived Assets to be Disposed of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be disposed of, on
January 1, 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to the future net undiscounted
cash flows expected to be generated by that asset. If such assets are considered
to be impaired, the amount of the impairment to be recognized is measured by the
amount by which the carrying value of the assets exceeds the fair value of the
assets. Assets to be disposed of are reported at the lower of the carrying
amount or the fair value less costs to sell. Adoption of this Statement did not
have a material impact on the Company's financial position, results of
operations, or liquidity.
Year 2000
The Company has developed an internal plan to address the Year 2000
issue and management believes that the Company is Year 2000 compliant. The Year
2000 problem is the result of computer programs being written in code which uses
two digits rather than four digits to identify the applicable year.
Stock - Based Compensation
In accordance with the provisions of Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees", the Company
measures stock-based compensation expense as the excess of the market price at
the grant date over the over the amount the employee must pay for the stock. The
Company's policy is to generally grant stock options at fair market value at the
date of grant, so no compensation expense is recognized. As permitted, the
Company has elected to adopt the disclosure provisions only of SFAS No. 123,
"Accounting for Stock-Based Compensation" (see Note 7).
Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities, and the amounts of revenue and
expenses at the date of the financial statements. Actual results could differ
from those estimates.
NOTE 2: - PROPERTIES
<TABLE>
<CAPTION>
Properties are comprised of the following at December 31,
(in thousands) 1997 1996
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Rural lands and unimproved
urban properties $ 23,757 $ 23,429
Properties under development 12,451 14,555
</TABLE>
-26-
<PAGE> 27
<TABLE>
<S> <C> <C>
Rental properties 17,678 16,852
Other 1,844 1,639
Accumulated depreciation,
depletion and amortization (5,397) (5,292)
Valuation Allowance (3,480) (3,705)
- ------------------------------------------------------------------------------------------------------
$ 46,853 $ 47,478
======================================================================================================
</TABLE>
The future rentals on non-cancelable operating leases related to the
Company's rental properties, but excluding its four apartment complexes, are as
follows: $454,000 in 1998; $439,000 in 1999; $436,000 in 2000; $378,000 in 2001;
$356,000 in 2002; and $480,000 in later years. The four apartment complexes,
which are federally subsidized under the U.S. Department of Housing and Urban
Development Section 8 Housing-Assistance-Payments Program, have contributed
revenue of $2,455,000 in 1997, $2,437,000 in 1996 and $2,412,000 in 1995.
NOTE 3 - COMMERCIAL REAL ESTATE LOANS
<TABLE>
<CAPTION>
Commercial real estate loans consist of the following at December 31,
(in thousands) 1997 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Managed portfolio $ 34,028 $ 9,723
Less participations (17,863) --
- ---------------------------------------------------------------------------------------------------------
Commercial real estate loans 16,165 9,723
Less allowance for bad debts (275) (75)
Undisbursed loan proceeds (603) --
- ---------------------------------------------------------------------------------------------------------
Commercial real estate loans, net $ 15,287 $ 9,648
=========================================================================================================
</TABLE>
All loans are secured by mortgages. Participating lenders typically
take a position senior to the Company's position with respect to payment of the
principal portion of those loans which are participated.
Undisbursed loan proceeds consist principally of interest and
construction cost reserve accounts which are held on behalf of borrowers to
ensure timely payment of periodic interest payments and final construction
costs.
On November 6, 1997 the Company, through its subsidiary Bridge
Financial Corporation, acquired a portfolio of commercial real estate loans from
RRH Financial in a purchase transaction. The Company paid $1,578,000 cash,
issued 531,714 shares of common stock valued at $5,467,000, and assumed certain
liabilities in exchange for certain mortgage loans owned by RRH Financial, which
had a fair value approximating the purchase price. The results of operations
related to that loan portfolio have been included in operations since November
6, 1997. The following unaudited summary presents the consolidated results of
operations of the Company as if the commercial loan portfolio of RRH financial
was purchased on January 1, 1996, with consideration given to various pro-forma
adjustments. The pro-forma results have been prepared for comparative purposes
only and do not purport to be indicative of the results of operations that would
have actually been achieved had the combination been in effect on the dates
indicated for the years ended December 31,
-27-
<PAGE> 28
<TABLE>
<CAPTION>
(in thousands, except share data) 1997 1996
(unaudited)
<S> <C> <C>
Revenue $18,113 $25,433
======= =======
Net income $ 3,067 $ 5,909
======= =======
Net income per share $ .80 $ 1.54
======= =======
</TABLE>
The portfolio consisted of several loans secured by first priority
mortgages on real property in Arizona. The managed portfolio acquired was
$24,633,000, of which $16,653,000 was participated with other lenders. The
remaining non-participated balance of $7,558,000 (net of undisbursed loan
proceeds of $422,000) was the amount recorded by the Company. From November 6,
1997 through December 31, 1997 the size of the managed portfolio increased by
new loans originated in the gross amount of $2,770,000, of which $2,216,000 was
participated with other lenders and $373,000 (net of undisbursed loan proceeds
of $181,000) was recorded by the Company. These loans bear interest at rates
ranging from 11.25% to 15.00% with terms ranging from 6 to 36 months.
The managed portfolio also includes loans made in connection with the
Company's recreational land sales. The mortgage notes receivable from these land
sales, due over ten to fifteen years, bear interest at rates ranging from 10% to
12%, and are secured by the properties sold. At December 31, 1997 and 1996
mortgage notes receivable relating to these sales totaled $6,680,000 and
$7,557,000, respectively. The Company sold land for mortgage notes receivable in
the amount of $1,635,000 and $1,910,000 during the years ended December 31, 1997
and 1996 respectively. In 1997 and 1996 the Company collected $1,395,000 and
$1,429,000 in principal payments on these land sale contracts.
One material loan in the Company's portfolio is delinquent and is in a
default status. The amount recorded by the Company for this loan is $460,000;
the total size of the loan under management is $2,225,000 and the participant's
share is $1,765,000. The Company has filed a notice of trustee's sale against
the underlying property. The Company does not expect to incur any loss with
respect to this loan. From time to time certain loans in the Company's portfolio
related to sales of 40 acre parcels may be delinquent or in default. None of
those certain loans individually nor all such loans collectively are material.
As of December 31, 1997 the aggregate amount of such loans was $253,000.
NOTE 4 - NOTES PAYABLE AND LINES OF CREDIT
Notes payable consist of the following at December 31,
<TABLE>
<CAPTION>
(in thousands) Maturity Interest
date rate (%) Payment 1997 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Mortgage loans:
Apartment complexes 2009 8.375 monthly P&I $ 7,851 $ 8,233
Commercial buildings 2006 9.125 monthly P&I 788 1,607
Undeveloped land 2000-2001 9.25-10.25 annual P&I 2,706 3,394
Development loans 1998-1999 prime(1) monthly Int 735 2,200
Other loans 1998-2004 7.125-7.6 various P&I 423 602
- ---------------------------------------------------------------------------------------------------------------------
$12,503 $16,036
=====================================================================================================================
</TABLE>
(1)Prime rate at December 31, 1997 was 8.5%
The Company and its partner guarantee development lines of credit for
one of its majority-owned partnerships. These lines, which are secured by the
-28-
<PAGE> 29
real property, expire in August 1998, June 1999, and August 1999, and have an
aggregate commitment amount of $5,300,000. At December 31, 1997, the aggregate
outstanding balance was $735,000. The interest rate is at the bank's prime rate,
8.5% at December 31, 1997.
The Company has a obtained a construction loan for one of its projects
from a commercial bank. The loan is secured by the property. The loan bears
interest at the prime rate and expires December 31, 1998. At December 31, 1997
there was no outstanding balance on this loan.
The Company has a $3,000,000 unsecured revolving line of credit from a
commercial bank that may be used for general corporate purposes. The line bears
interest at the prime rate and expires December 31, 1998. At December 31, 1997
there was no outstanding balance on this loan. This loan contains financial
covenants which require the Company to maintain a specified minimum ratio of
current assets to current liabilities; a specified minimum excess of current
assets over current liabilities; and a specified maximum ratio of total
liabilities to tangible net worth. At December 31, 1997 the Company was in
compliance with these financial covenants.
The Company also has a secured $1,000,000 revolving line of credit from
a commercial bank that may be used for general corporate purposes. This line is
secured by certain real estate assets of the Company. The line bears interest at
the prime rate and expires April 1, 1998. At December 31, 1997 there was no
outstanding balance on this loan. The Company does not expect to renew this
loan.
Principal payments due on all notes payable and lines of credit are as
follows: $1,716,000 in 1998; $1,633,000 in 1999; $1,277,000 in 2000; $1,176,000
in 2001; $657,000 in 2002; and $6,044,000 in later years. Interest paid in 1997,
1996 and 1995, amounted to $1,344,000, $1,360,000 and $1,316,000, respectively.
Interest cost incurred in 1997, 1996 and 1995, was $1,317,000, $1,470,000 and
$1,286,000, respectively, of which $297,000, $507,000 and $340,000 was
capitalized.
NOTE 5 - INCOME TAXES
<TABLE>
<CAPTION>
Income tax expense is comprised of the following:
(in thousands) 1997 1996 1995
- --------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 1,321 $1,362 $2,531
State 352 341 633
Deferred
Federal (106) 1,198 368
State (19) 299 97
- --------------------------------------------------------------------
$ 1,548 $3,200 $3,629
=====================================================================
</TABLE>
The reconciliation of the computed statutory income tax expense to the
effective income tax expense follows:
<TABLE>
<CAPTION>
(in thousands) 1997 1996 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory Federal income tax expense $1,322 $2,736 $3,104
Reconciling items:
State income taxes, net of Federal benefit 220 422 474
Other 6 42 51
- ----------------------------------------------------------------------------------------------
</TABLE>
-29-
<PAGE> 30
<TABLE>
<S> <C> <C> <C>
$1,548 $3,200 $3,629
==============================================================================================
</TABLE>
-30-
<PAGE> 31
The effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
<TABLE>
<CAPTION>
(in thousands) 1997 1996
- -------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Properties, principally due to
valuation allowances, depreciation
and amortization of costs $ 621 $ 1,040
Investments in joint ventures,
principally due to valuation allowances 649 167
Other 5 103
- -------------------------------------------------------------------------------------
Total gross deferred tax assets $ 1,275 $ 1,310
- -------------------------------------------------------------------------------------
Deferred tax liabilities:
Properties, principally due to basis
differences upon acquisition $(4,926) $(5,317)
Commercial real estate loans/deferred revenue,
principally due to installment sales (1,629) (1,606)
Other (81) (72)
- -------------------------------------------------------------------------------------
Total gross deferred tax liabilities (6,636) (6,995)
- -------------------------------------------------------------------------------------
Net deferred tax liability $(5,361) $(5,685)
=====================================================================================
</TABLE>
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected future
taxable income, and tax planning strategies in making this assessment. Based
upon these factors, management believes that it is more likely than not that the
Company will realize the benefits of these deductible differences at December
31, 1997.
Income taxes paid in 1997, 1996 and 1995 amounted to $1,395,000,
$1,418,000 and $3,596,000, respectively.
NOTE 6 - RETIREMENT PLANS
Pension Plan:
The Company's defined benefit retirement plan covers substantially all
full-time employees. The benefits are based on employment commencement date,
years of service and compensation. Plan restatement to conform with TRA86 and
subsequent changes was completed in December 1994. In accordance with Statement
of Financial Accounting Standards No. 87 Employers' Accounting for Pensions
(FAS87), the effect of the restatement was recognized in 1995. No additional
post-employment benefits are provided and plan assets are invested in various
mutual funds. The Plan was "frozen" on December 31, 1996. No gain or loss was
recognized by the Company. The "freeze" puts a stop on future benefit accruals.
The net periodic pension benefit is computed as follows for years ended
-31-
<PAGE> 32
December 31,
<TABLE>
<CAPTION>
(in thousands) 1997 1996 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $-- $ 43 $ 39
Interest cost 47 47 41
Return on assets
Actual (292) (175) (333)
Deferred gain 191 106 251
Amortization of unrecognized net transition asset (26) (26) (26)
- -------------------------------------------------------------------------------------------------
Net periodic pension benefit $ (80) $ (5) $ (28)
=================================================================================================
</TABLE>
Through December 31, 1997, the Company accrued retirement benefits
based on an independent actuarial valuation for the plan. The discount rate and
the rate of increase in future compensation levels used in determining the
actuarial present value of the projected benefit obligations were 7% and 0%,
respectively, at December 31, 1997, 1996 and 1995. The expected long-term rate
of return on plan assets was 7% for 1997, 1996 and 1995.
The following is the funded status of the Plan at December 31,
<TABLE>
<CAPTION>
(in thousands) 1997 1996
- --------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits $ 689 $ 675
Nonvested benefits 0 0
- --------------------------------------------------------------------------------------
Accumulated and projected benefit obligation 689 675
Fair value of plan assets (1,737) (1,464)
- --------------------------------------------------------------------------------------
Excess of assets over projected benefit obligation (1,048) (789)
Unrecognized net gain 331 146
Unrecognized net transition asset 332 358
- --------------------------------------------------------------------------------------
Prepaid pension asset $ (385) $ (285)
======================================================================================
</TABLE>
401(k) Savings Plan:
The Company has a 401(k) Savings Plan for all of its employees. The
Company matches up to 3% of the employee's salary contributed. Total expense for
the Company under this plan was $19,400, $19,700 and $19,800 for 1997, 1996 and
1995, respectively.
NOTE 7 - RESTRICTED STOCK PLAN
In 1988 the Company adopted a Restricted Stock Plan (the "Restricted
Plan") to distribute shares of stock to senior executives at no cost. There are
100,000 shares of common stock authorized for awards during the Plan's ten year
term. No shares were awarded in 1997, 1996 and 1995. A total of 31,400 shares
have been awarded since inception of the Restricted Plan. Forfeiture
restrictions lapse on the third, fourth and fifth anniversary after award. In
1995 special dispensation was given, due to internal restructuring, and
restrictions were lifted on 4,507 shares. Restrictions were lifted on the
remaining 733 shares in 1997. Compensation expense is recorded for the awards of
stock under the Restricted Plan in each period in which services are performed.
The Company recognized compensation expense of $100, $1,000 and $13,000 related
to these awards for the years ended December
-32-
<PAGE> 33
31, 1997, 1996 and 1995, respectively.
On October 27, 1997, the Company's Board of Directors approved the New
Mexico and Arizona Land Company 1997 Stock Incentive Plan (the "Plan"). The
Plan provides that the following types of awards (collectively, "Awards") may
be granted under the Plan: stock appreciation rights ("SARs"); incentive stock
options ("ISOs"); non-qualified stock options ("NQSOs"); restricted stock
awards; unrestricted stock awards; and performance share awards which entitle
recipients to acquire shares upon the attainment of specified performance
goals. Under the Plan, Awards may be granted with respect to a maximum of
500,000 shares of the Company's Common Stock, subject to adjustment in
connection with certain events such as a stock split, merger or other
recapitalization of the Company.
As of the date of this report, the Board has granted to R. Randy
Stolworthy, the Company's President and Chief Executive Officer, options under
the Plan to purchase up to 250,000 shares of the Company's Common Stock. Such
option has been divided into five equal exercise price category units of
50,000 shares for exercise price purposes, with the first unit being
exercisable at $15 per share, with the exercise price of each subsequent unit
being increased by 12% (i.e., at exercise prices of $16.80, $18.82, $21.07 and
$23.60). One fifth of the shares in each price category unit vested and became
exercisable on February 19,1998 and an additional one-fifth will vest on each
of the four subsequent anniversaries of that date. As of the date of this
report, approximately eleven persons were eligible to participate in the Plan.
No compensation expense was recognized in 1997 because the exercise price at
the date of grant was higher than the price of the Common Stock of the Company
at December 31, 1997. The Plan is to be voted on by the Shareholders of the
Company at the May 8, 1998 Annual Meeting.
Effective as of January 1, 1996, the Company adopted the disclosure
requirements of SFAS No. 123, "Accounting for Stock-Based Compensation. As
permitted under SFAS No. 123, the Company will continue to measure stock-based
compensation expense as the excess of the market price at the grant date over
the amount the employee must pay for the stock.
SFAS No. 123 requires disclosure of pro forma net income and proforma
net income per share as if the fair value based method had been applied in
measuring compensation expense for awards granted in fiscal 1997.
-33-
<PAGE> 34
Reported and pro forma net income, in thousands, and net income per
share amounts for the year ended December 31, 1997 are set forth below:
<TABLE>
<CAPTION>
1997
-------
<S> <C>
Reported:
Net income $2,340
Basic net income per share $0.69
Diluted net income per share $0.69
Pro forma:
Net income $2,218
Basic net income per share $0.65
Diluted net income per share $0.65
</TABLE>
The fair values of the options granted were estimated on the date of
their grant using the Black-Scholes option pricing model based on the following
weighted average assumptions:
<TABLE>
<CAPTION>
1997
-----
<S> <C>
Risk free interest rate 5.521%
Expected life (in years) 5.0
Expected volatility 34%
Expected dividend yield 0
</TABLE>
Stock options outstanding at December 31, 1997 were as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------- ----------------------------
Weighted
Average
Remaining Weighted Weighted
Range of Number of Contractual Average Number of Average
Exercise Options Life Exercise Options Exercise
Prices Outstanding (in years) Price Exercisable Price
- ------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$15.00-$23.60 250,000 12.14 $19.06 -- --
</TABLE>
-34-
<PAGE> 35
Activity related to the stock option plan is summarized below:
<TABLE>
<CAPTION>
Year ended December 31, 1997
-------------------------------------
Number of Shares Weighted
Average
Exercise Price
---------------- ---------------
<S> <C> <C>
Options outstanding beginning of year -- --
Granted during the year 250,000 $19.06
Exercised during the year -- --
Expired/cancelled during the year -- --
-------- ------
Options outstanding end of year 250,000
========
Options exercisable end of year -- --
========
Weighted-average fair value of options granted during the year
$ 4.58
========
</TABLE>
NOTE 8 - DIRECTOR STOCK AWARDS
In December, 1997 the Board of Directors awarded 350 shares of common
stock of the Company to each director. The shares were valued at fair market
value on the date of the grant. A total of 2,450 shares was issued on December
31, 1997. The shares contain a restrictive legend as required under Rule 144 of
the Securities Act of 1933. In addition a cash award of $2,048 was paid to each
director.
In November, 1996 the Board of Directors awarded 750 shares of common
stock of the Company to each director. The shares were valued at the fair market
value on the date of the grant. A total of 5,250 shares was issued on December
30, 1996. The shares contain a restrictive legend as required under Rule 144 of
the Securities Act of 1933. In addition a cash award of $3,750 was paid to each
director.
In December, 1995, the Board of Directors awarded 1,000 shares of
common stock of the Company to each director. It was determined that the stock
used for these awards would be treasury stock. Of the Company's 11,908 shares of
treasury stock, 7,000 shares were reissued at 1,000 shares to each director, on
December 28, 1995. The shares were valued at the fair market value on the grant
date. The reissued shares contain a restrictive legend as required under Rule
144 of the Securities Act of 1933. In addition a cash award of $4,750 was paid
to each director.
Compensation expense of $50,000 in 1997, $92,000 in 1996, and $116,000
in 1995 was recorded as a result of the above awards.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
The Company is a party to various legal proceedings arising in the
ordinary course of business. While it is not feasible to predict the ultimate
disposition of these matters, it is the opinion of management that their outcome
will not have a material adverse effect on the financial condition of the
Company.
-35-
<PAGE> 36
The Company and certain of its directors and an officer have been named
as defendants in a lawsuit brought by the Company's minority partner in a joint
venture of which the Company is the managing partner. The plaintiffs' suit
includes counts for breach of contract, an accounting of the partnership,
declaratory judgment and injunction. The suit arises out of a dispute between
the Company and its partner concerning the prior removal of the partner as
managing partner by the Company. The Company believes the lawsuit against the
Company and the individuals is without merit and will vigorously defend against
the allegations made. The outcome of the suit is not expected to have a material
adverse effect on the financial condition of the Company.
NOTE 10 - RELATED PARTY TRANSACTIONS
On April 22, 1997, the Company purchased an industrial park consisting
of one partially leased 31,077 square foot multi-tenant industrial building on
7.1 acres of land in Tempe, Arizona. The Company purchased the property from R.
Randy Stolworthy, who was Executive Vice President of the Company at the time.
The cash purchase price of $2.8 million was based upon an MAI appraisal that was
prepared for the Company by an independent appraiser. The property had been
identified by the Company as a potential acquisition in late 1996.
-36-
<PAGE> 37
NOTE 11 - UNAUDITED QUARTERLY FINANCIAL INFORMATION
Certain unaudited quarterly financial information for the years ended
December 31, 1997, and 1996 is presented below:
<TABLE>
<CAPTION>
First Second Third Fourth
(in thousands, except per share data) Quarter Quarter Quarter Quarter Total
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997
Revenue $3,124 $3,428 $5,823 $ 4,529 $16,904
===================================================================================================================
Net income $ 484 $ 476 $ 781 $ 599 $ 2,340
===================================================================================================================
Net income per share
Basic $ 0.14 $ 0.14 $ 0.23 $ 0.18 $ 0.69
Diluted $ 0.14 $ 0.14 $ 0.23 $ 0.18 $ 0.69
===================================================================================================================
1996
Revenue $4,608 $3,121 $4,690 $11,241 $23,660
===================================================================================================================
Net income $ 837 $ 551 $ 762 $ 2,696 $ 4,846
===================================================================================================================
Net income per share(1)
Basic $ 0.25 $ 0.17 $ 0.23 $ 0.81 $ 1.46
Diluted $ 0.25 $ 0.17 $ 0.23 $ 0.81 $ 1.46
===================================================================================================================
</TABLE>
(1) Restated to reflect a 10% stock dividend paid July 18, 1997.
-37-
<PAGE> 38
New Mexico and Arizona Land Company and Subsidiaries
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
<TABLE>
<CAPTION>
December 31, 1997 Cost
(in thousands) capital-
ized sub- Gross amount at which
Initial cost sequent carried at close
To Company to of period(1)
----------------- acqui- ---------------------------- Accum-
Bldgs sition Buildings ulated
and im- -------- and depre-
Encum- prove- Improve- improve- Total ciation Date
brances Land ments ments Land ments (a)(2) (b)(5) acquired
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unimproved Properties
Arizona and New Mexico(3) $ 751 $12,029 $ -- $ 656 $12,587 $ 98 $12,685 $ 77 various
Colorado -- 2,751 -- 14 2,765 -- 2,765 -- 1996
Cottonwood, Arizona 2,287 4,584 -- 55 4,639 -- 4,639 -- 1996
Chandler, Arizona 51 3,245 -- 423 3,245 423 3,668 117 1986
Properties Under Development
40-acre lots, Arizona -- 4 -- -- 4 -- 4 -- 1908
Albuquerque, New Mexico(3) 735 832 -- 1,745 832 1,745 2,577 -- 1992-1995
Sedona, Arizona(4) -- 7,500 -- 2,370 9,870 -- 9,870 -- 1995
Rental Properties
Commercial Buildings
Phoenix, Arizona 788 1,549 2,451 1,402 1,549 3,853 5,402 497 1986
Apartments
New Mexico 7,851 1,187 10,665 424 1,187 11,089 12,276 4,070 1985
- --------------------------------------------------------------------------------------------------------------------------------
$12,463 $33,681 $13,116 $ 7,089 $36,678 $17,208 $53,886 $ 4,761
================================================================================================================================
</TABLE>
-38-
<PAGE> 39
(1) Tax basis: $33,000,000
(2) A valuation allowance in the amount of $3,480,000 was established in prior
years to reflect the Company's estimated realizable value upon ultimate
disposition of certain of its properties, principally unimproved urban real
estate.
(3) Certain properties are owned by partnerships of which the Company has a 75%
ownership.
(4) Owned by a partnership in which the Company has a 93% ownership.
(5) Life on which depreciation in the latest income statements is computed: 5 to
35 years.
(a) NOTE TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
<TABLE>
<CAPTION>
Years ended December 31,
(in thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ 54,836 $48,970 $39,861
Additions during year:
Acquisitions(1) 3,648 7,459 10,614
Improvements 5,529 5,613 6,081
Deductions during year:
Cost of real estate sold (10,127) (7,206) (7,586)
- --------------------------------------------------------------------------------
Balance at close of year $ 53,886 $54,836 $48,970
================================================================================
(1) Includes real estate acquired from an officer of the Company for $2,824,000
cash.
</TABLE>
(b) NOTE TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
<TABLE>
<CAPTION>
Years ended December 31,
(in thousands) 1997 1996 1995
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance of accumulated depreciation
at beginning of year $4,586 $4,188 $3,764
Additions during year:
Current year's depreciation 431 398 447
Deductions during year:
Real estate sold (256) -- (23)
- ----------------------------------------------------------------------------------
Balance at close of year $4,761 $4,586 $4,188
==================================================================================
</TABLE>
-39-
<PAGE> 40
New Mexico and Arizona Land Company and Subsidiaries
SCHEDULE IV--MORTGAGE LOANS ON REAL ESTATE
December 31, 1997
(In thousands)
<TABLE>
<CAPTION>
Principal
amount of
loans
subject to
Face Carrying delinquent
Final Periodic amount amount of principal
Interest maturity payment of mortgages or
Description rate date terms mortgages (3)(a) interest
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
Mortgages on:
Unimproved land sales in Arizona
and New Mexico (predominately
40-acre parcel sales) 10%-12% 1997-2012 $ 6,680 $ 6,680 $253
Mineral Rights--Arizona 11% 2001 Quarterly(6) 100 100
Unimproved property--Arizona 12.625-13.25% 1998-2000 (1) 2,083 2,083
Improved operating property--Arizona 12.75-15% 1998-1999 (1) 579 579
Car wash--Chandler, Arizona 11.25% 1998 Monthly (5) 605 605
Hotel--Phoenix, Arizona 13% 1998 Monthly (1)(2) 526 526
Hotel--Scottsdale, Arizona 12.625% 1998 Monthly (1)(2) 1,567 1,567
Unimproved property-Buckeye, Arizona 13.125% 1998 Monthly (1)(2) 393 393
Unimproved property-Chandler, Arizona 13.25% 1998 Monthly (2) 850 850
Unimproved property-Gilbert, Arizona 13.5% 1998 Monthly (2) 915 915
Unimproved property-Scottsdale, Arizona 13.25% 1997 Monthly (1)(2) 460 460 460(4)
Unimproved lots JV partnership sale-Alb,NM 10% 2000 Variable 804 804
Valuation allowance (275)
- ------------------------------------------------------------------------------------------------------------------------------------
$15,562 $15,287 $713
====================================================================================================================================
(1) The company's participant in these loans has a preferential right to repayment of principal.
(2) Level payments of interest.
(3) Tax basis is $15,562,000
(4) The company has filed a notice of trustee's sale on the delinquent loan
(5) Level payments of principal and interest.
(6) Level payments of principal plus interest on the unpaid balance.
</TABLE>
-40-
<PAGE> 41
(a) NOTE TO SCHEDULE IV -- MORTGAGE LOANS ON REAL ESTATE
Years ended December 31,
<TABLE>
<CAPTION>
(In thousands) 1997 1996 1995
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of period 9,648 9,464 8,688
Additions during period:
New mortgage loans 9,517 1,910 2,045
Deduction during period:
Collections of principal (3,596) (1,453) (946)
Forfeitures on installment contracts (282) (273) (323)
- ----------------------------------------------------------------------
Balance at close of year $15,287 $9,648 $9,464
======================================================================
</TABLE>
-41-
<PAGE> 42
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Certain information concerning the Company's executive officers and
other key employees is set forth below. Certain information concerning the
Company's directors is set forth in the Company's proxy statement for its 1998
annual meeting of shareholders under the headings "Election of Directors" and
"Section 16(a) Beneficial Ownership Reporting Compliance" and is incorporated
herein by reference.
R. RANDY STOLWORTHY, CHIEF EXECUTIVE OFFICER, BRIDGE FINANCIAL
CORPORATION AND PRESIDENT AND CHIEF EXECUTIVE OFFICER, NEW MEXICO AND ARIZONA
LAND COMPANY
Mr. Stolworthy, age 41, came to the Company from R.R.Stolworthy, Inc.,
a company he founded to manage and control the development of several large
parcels of real estate in the Phoenix metropolitan area. Before that, he was
co-founder and President of Voicelink Data Service, a large credit and marketing
service company in Redmond, Washington. Voicelink Data Services merged with
Digital Systems International in 1991.
Mr. Stolworthy gained investment and business experience as a General
Partner and Manager of the Seattle office of FBS Venture Capital Company, where
he successfully invested in early-stage growth companies and participated as an
active board member.
PAUL SARGENT, PRESIDENT, BRIDGE FINANCIAL CORPORATION
Mr. Sargent, age 43, is experienced in short-term commercial real
estate lending. Until its acquisition by the Company, he had directed the growth
of RRH Financial from the ground up. During his tenure at RRH Financial, the
company originated nearly $100 million of loan transactions in total.
Prior to forming RRH Financial, Mr. Sargent obtained experience at
Chase Bank in Arizona and New York, and earlier in his career, at Mellon
Financial Services and Pickrell Mortgage Company in Phoenix. Over the past
decade, he has placed loans with over 46 different institutions, ranging in
amounts from $125,000 to $35-million.
JEROME L. JOSEPH, CONTROLLER, TREASURER AND SECRETARY
Mr. Joseph, age 40, has acquired an in-depth knowledge of the
specialized finance and accounting needs of entrepreneurial real estate
development companies and early-stage companies. He has worked with both public
and private companies in compliance, reporting, capital formation and cash
management.
He came to the Company from Unison HealthCare Corporation, where he was
Vice President and Treasurer. Before Unison, he served three years at UDC Homes
Inc. as Manager of Finance, and ten years at Homes by Dave Brown, the last four
years as Senior Vice President-Finance and Treasurer. He has also worked in
various consulting capacities in management and finance.
-42-
<PAGE> 43
SUZANNE DRAKE, VICE PRESIDENT, REAL ESTATE
Ms. Drake, age 41, draws on her extensive background in development,
asset management, acquisitions and dispositions and loan workouts in all facets
of real estate. She is responsible for the Company's new development efforts.
Prior to joining the Company, she was Regional Manager for Transamerica
Real Estate, where she managed an office that handled a portfolio of real estate
and loans totaling more than $500 million in book value. This portfolio of
loans, master-planned communities, office and industrial buildings and land
parcels, required loan workouts and development efforts, as well as legal
dispute reconciliation and disposition.
J. D. SPHAR, VICE PRESIDENT, MINERALS
Mr. Sphar, age 57, joined the Company as Chief Geologist in 1971. He
was promoted to his current position in 1973. He manages the Company's mineral
assets and assists in the management of the Company's vast rural acres. Mr.
Sphar's efforts have generated over $8 million in leasehold payments to the
Company. He has been the principal negotiator for uranium sales of $30 million
and he has initiated sales and trades of 200,000 acres of fee minerals with the
federal government.
Prior to joining the Company, Mr. Sphar was Southwest District
Geologist for Western Nuclear, Inc for two years and Mine Geologist for
Kerr-McGee Corporation for two years.
ITEM 11: EXECUTIVE COMPENSATION
Information required under this item is contained in the Company's 1998
Proxy Statement, under the heading "Executive Compensation", and is incorporated
herein by reference.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required under this item is contained in the Company's 1998
Proxy Statement, under the heading "Voting Securities, Principal Shareholders,
and Management Ownership" and is incorporated herein by reference.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required under this item is contained in the Company's 1998
Proxy Statement, under the heading "Certain Relationships and Related
Transactions" and is incorporated herein by reference.
-43-
<PAGE> 44
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The consolidated financial statements and schedules are included in
Part III, Item 8:
Independent Auditors' Report
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Cash Flows
Consolidated Statements of Shareholders Equity
Notes to Consolidated Financial Statements
Schedule III - Real Estate and Accumulated Depreciation
Schedule IV - Mortgage Loans on Real Estate
Exhibits:
Exhibit 3 Articles of Incorporation of Registrant amended May 16, 1997
and By-laws of Registrant amended May 16, 1997.
Exhibit 4.1 1997 Stock Incentive Plan, incorporated by reference to
Form S-8 filed January 9, 1998.
Exhibit 21 Subsidiaries of the Company
Exhibit 23 Consent of KPMG Peat Marwick LLP
Exhibit 27 Financial Data Schedule
All other exhibits are omitted because they are inapplicable, contained
elsewhere in the report or have been previously filed with the Securities and
Exchange Commission.
No Form 8-K was filed in 1997.
-44-
<PAGE> 45
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
NEW MEXICO AND ARIZONA LAND COMPANY
(Registrant)
/s/R. Randy Stolworthy /s/Jerome L. Joseph
- ------------------------------ ---------------------------------
R. Randy Stolworthy Jerome L. Joseph
President (Principal Controller and Treasurer
Executive Officer) (Principal Financial Officer)
Dated: March 26, 1998
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints R. Randy Stolworthy and Jerome L. Joseph
jointly and severally, his attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any amendments to this
Report on Form 10-K, and file the same, with exhibits thereto and any other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
/s/Stephen E. Renneckar /s/John C. Lucking
- ------------------------------ ---------------------------------
Stephen E. Renneckar John C. Lucking
Chairman Director
/s/William A. Pope /s/Arnold L. Putterman
- ------------------------------ ---------------------------------
William A. Pope Arnold L. Putterman
Director Director
/s/Ronald E. Strasburger /s/Richard A. Wessman
- ------------------------------ ---------------------------------
Ronald E. Strasburger Richard A. Wessman
Director Director
Dated: March 26, 1998
-45-
<PAGE> 46
EXHIBITS INDEX
Exhibit 3 Articles of Incorporation of Registrant amended May 16, 1997
and By-laws of Registrant amended May 16, 1997.
Exhibit 4.1 1997 Stock Incentive Plan, incorporated by reference to
Form S-8 filed January 9, 1998.
Exhibit 21 Subsidiaries of the Company
Exhibit 23 Consent of KPMG Peat Marwick LLP
Exhibit 27 Financial Data Schedule
All other exhibits are omitted because they are inapplicable, contained
elsewhere in the report or have been previously filed with the Securities and
Exchange Commission.
<PAGE> 1
EXHIBIT 3
RESTATED ARTICLES OF INCORPORATION OF
NEW MEXICO AND ARIZONA LAND COMPANY
(as of May 16, 1997)
Pursuant to Section 10-1006 and 10-1007, Arizona Revised Statutes, the
undersigned corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
1. The name of the corporation is NEW MEXICO AND ARIZONA LAND COMPANY.
2. Attached hereto as Exhibit A, is a copy of the articles of incorporation
of the corporation fully restated to include all amendments to the articles of
incorporation through the date of filing of this document.
3. The restatement does contain an amendment requiring shareholder approval.
The amendment does not provide for an exchange, reclassification or cancellation
of issued shares.
4. The amendment was approved by the shareholders on May 16, 1997. There is
one voting group entitled to vote separately on the amendment. The designation
and number of outstanding shares in each voting group entitled to vote
separately on the amendment, the number of votes entitles to be cast by each,
the number of votes of each such voting group represented at the meeting at
which the amendment was adopted and the votes cast for and against the
amendment were as follows:
The voting group consisting of 3,012,886 outstanding shares of common
stock is entitled to 3,012,886 votes. There were 2,592,011 votes present at the
meeting. The voting group cast 2,571,613 votes for and 9,894 votes against
approval of the amendment adding a new Article Eighth as set forth on Exhibit
A. 10,504 votes abstained from voting for or against approval of the amendment.
DATED as of the 16th day of May, 1997.
NEW MEXICO AND ARIZONA LAND COMPANY
By /s/
-------------------------------------------------------
Sr. Vice President, Treasurer and Secretary
<PAGE> 2
EXHIBIT A
RESTATED ARTICLES OF INCORPORATION OF
NEW MEXICO AND ARIZONA LAND COMPANY
(as of May 16, 1997)
KNOW ALL MEN BY THESE PRESENTS that we, whose hands are hereunto affixed, do
hereby associate ourselves together for the purpose of forming a corporation
under the laws of the State of Arizona and, to that end, do adopt the following
articles of incorporation:
FIRST: The name of the corporation shall be NEW MEXICO AND ARIZONA LAND COMPANY.
SECOND: This corporation is organized for the purpose of transacting any or all
lawful business for which corporations may be incorporated under the laws of
the State of Arizona, as amended from time to time. The corporation is
presently engaged in the business of holding and managing land for investment
purposes, leasing real property and interests therein, and developing mineral
resources.
THIRD: The corporation shall have authority to issue a total of forty million
(40,000,000) shares of capital stock, consisting of:
(1) Thirty million (30,000,000) shares of common stock, no par value per
share; and
(2) Ten million (10,000,000) shares of serial preferred stock, no par
value per share.
Each issued and outstanding share of common stock will entitle the holder
thereof to one (1) vote on any matter submitted to a vote of or for consent of
shareholders. Issued and outstanding shares of serial preferred stock will
entitle the holders thereof only to those votes, if any, which may expressly be
fixed as hereinafter provided for the respective series thereof and to voting
rights on certain matters, and in certain circumstances, as set forth in this
Article.
The Board of Directors is authorized to provide from time to time for the
issuance of shares of serial preferred stock in series and to fix from time to
time before issuance the designation, preferences, privileges and voting powers
of the shares of each series of serial preferred stock and the restrictions or
qualifications thereof, including, without limiting the generality of the
foregoing, the following:
a) The serial designation and authorized number of shares;
b) The dividend rate, the date or dates on which such dividends will be
payable, and the extent to which such dividends may be cumulative;
c) The amount or amounts to be received by the holders in the event of
voluntary or involuntary dissolution or liquidation of the
Corporation;
d) The price or prices at which shares may be redeemed and any terms,
conditions and limitations upon such redemption;
e) Any sinking fund provisions for redemption or purchase of shares of
such series; and
f) The terms and conditions, if any, on which shares may be converted
into shares of
1
<PAGE> 3
other capital stock, or of other series of serial preferred stock of
the Corporation.
Each series of serial preferred stock, in preference to the common stock, may be
entitled to dividends, from funds or other assets legally available therefor, at
such rates, payable at such times and cumulative to such extent as may be fixed
by the Board of Directors pursuant to the authority herein conferred upon it. In
the event of dissolution or liquidation of the Corporation, voluntary or
involuntary, the holders of the serial preferred stock, in preference to the
common stock, may be entitled to receive such amount or amounts as may be fixed
by the Board of Directors pursuant to the authority herein conferred upon it.
Preferred stock of any series redeemed, converted, exchanged, purchased or
otherwise acquired by the Corporation shall be cancelled by the Corporation and
returned to the status of authorized but unissued preference stock.
All shares of any series of serial preferred stock, as between themselves,
shall rank equally and be identical except as set forth in resolutions of the
board of directors authorizing the issuance of the series.
FOURTH: All directors of the corporation must be shareholders of the
corporation. The number of directors of the corporation shall be set by the
Board of Directors from time to time; provided, however, that the number of
directors so designated shall be no less than five (5) nor more than nine (9).
The Board of Directors shall consist of Class A directors and Class B
directors. The Class A directors shall be elected for a term of two (2) years
at the annual meeting of shareholders of the corporation held in every odd
numbered year. The Class B directors shall be elected for a term of two (2)
years at the annual meeting of shareholders of the corporation held in every
even numbered year. When an even number of directors has been set by the Board
of Directors, there shall be an even number of Class A and Class B directors.
When an odd number of directors has been set by the Board of Directors, there
shall be one more Class B director than there are Class A directors.
FIFTH: The Board of Directors may, from time to time, cause the corporation to
purchase its own shares to the extent of the unreserved and unrestricted
capital surplus of the corporation.
SIXTH: Elizabeth M. Bedewi, Senior Vice President, Treasurer and Secretary of
New Mexico and Arizona Land Company, 3033 North 44th Street, Suite 270,
Phoenix, Arizona 85018-7228, is hereby appointed statutory agent for the
corporation for the State of Arizona.
SEVENTH: The liability of a director or former director to the corporation or
its shareholders shall be eliminated to the fullest extent permitted by Section
10-202.B.1 of the Arizona Revised Statutes. If the Arizona Business Corporation
Act is amended to authorize corporate action further eliminating or limiting
the liability of directors, the liability of a director of the corporation
shall be eliminated or limited to the fullest extent permitted by the Arizona
Business Corporation Act, as amended.
Any repeal or modification of this Article Seventh shall not adversely affect
any right or protection of a director of the Corporation existing hereunder
with respect to any act or omission
2
<PAGE> 4
occurring prior to or at the time of such repeal or modification.
The provisions of the Article Seventh shall not be deemed to limit or preclude
indemnification of a director by the Corporation for any liability of a director
which has not been eliminated by the provisions of the Article Seventh.
EIGHTH: The Corporation shall indemnify any and all of its existing and former
directors and officers to the fullest extent permitted by Section 10-202b.2 of
the Arizona Business Corporation Act. If the Arizona Business Corporation Act
is amended to authorize corporate action further permitting indemnification of
directors or officers, the Corporation shall indemnify its existing and former
directors and officers to the fullest extent permitted by the Arizona Business
Corporation Act, as amended.
Any repeal or modification of this Article Eighth shall not adversely affect
any right or protection of existing or former directors or officers existing
hereunder with respect to any act or omission occurring prior to or at the time
of such repeal or modification.
3
<PAGE> 5
BYLAWS
OF
NEW MEXICO AND ARIZONA LAND COMPANY
Amended and Restated
as of May 16, 1997
<PAGE> 6
AMENDED AND RESTATED
BYLAWS
OF
NEW MEXICO AND ARIZONA LAND COMPANY
I. REFERENCES TO CERTAIN TERMS AND CONSTRUCTION
1.01 Certain References. Any reference herein made to law will be
deemed to refer to the law of the State of Arizona, including any applicable
provision of Chapters 1 through 17 of Title 10 of the Arizona Revised Statutes,
or any successor statute, as from time to time amended and in effect (sometimes
referred to herein as the "Arizona Business Corporation Act"). Any reference
herein made to the corporation's Articles will be deemed to refer to its
Articles of Incorporation and all amendments thereto as at any given time on
file with the Arizona Corporation Commission. Except as otherwise required by
law and subject to any procedures established by the corporation pursuant to
Arizona Revised Statutes Section 723, the term "shareholder" as used herein
shall mean one who is a holder of record of shares of the corporation.
References to specific sections of law herein made shall be deemed to refer to
such sections, or any comparable successor provisions, as from time to time
amended and in effect.
1.02. Seniority. The law and the Articles (in that order of
precedence) will in all respects be considered senior and superior to these
Bylaws, with any inconsistency to be resolved in favor of the law and such
Articles (in that order of precedence), and with these Bylaws to be deemed
automatically amended from time to time to eliminate any such inconsistency
which may then exist.
1.03. Computation of Time. The time during which an act is required
to be done, including the time for the giving of any required notice herein,
shall be computed by excluding the first day or hour, as the case may be, and
including the last day or hour.
II. OFFICES
2.01. Principal Office. The principal office of the corporation shall
be located at any place either within or outside the State of Arizona as
designated in the corporation's most current Annual Report filed with the
Arizona Corporation Commission or in any other document executed and delivered
to the Arizona Corporation Commission for filing. If a principal office is not
so designated, the principal office of the corporation shall mean the known
place of business of the corporation. The corporation may have such other
offices, either within or without the State of Arizona, as the Board of
Directors may designate or as the business of the corporation may require from
time to time.
2.02. Known Place of Business. A known place of business of the
corporation shall be located within the State of Arizona and may be, but need
not be, the address of the statutory agent of the corporation. The corporation
may change its known place of business from time to time in accordance with the
relevant provisions of the Arizona Business Corporation Act.
III. SHAREHOLDERS
3.01. Annual Shareholder Meeting. The annual meeting of the
shareholders shall be held on or before June 30th in each year, at such time and
place, either within or without the State of Arizona, as shall be fixed by the
Board of Directors or, in the absence of action by the Board, as set forth in
the notice given or waiver signed with respect to such meeting pursuant to
Section 3.03 below, for the purpose of electing directors and for the
transaction of such other business as may properly come before the meeting. If
any annual meeting is for any reason not held on the date determined as
aforesaid; a
1
<PAGE> 7
deferred annual meeting may thereafter be called and held in lieu thereof, at
which the same proceedings may be conducted. If the day fixed for the annual
meeting shall be a legal holiday in the State of Arizona such meeting shall be
held on the next succeeding business day.
3.02. Special Shareholder Meetings. Special meetings of the
shareholders may be held whenever and wherever, either within or without the
State of Arizona, called for by or at the direction of the Chairman of the
Board, the President, or the Board of Directors.
3.03. Notice of Shareholders Meetings.
(a) Required Notice. Notice stating the place, day and hour of
any annual or special shareholders meeting shall be given not less than ten (10)
nor more than sixty (60) days before the date of the meeting by or at the
direction of the person or persons calling the meeting, to each shareholder
entitled to vote at such meeting and to any other shareholder entitled to
receive notice of the meeting by law or the Articles. Notices to shareholders
shall be given in accordance with, and shall be deemed to be effective at the
time and in the manner described in, Arizona Revised Statutes Section 10-141. If
no designation is made of the place at which an annual or special meeting will
be held in the notice for such meeting, the place of the meeting will be at the
principal place of business of the corporation.
(b) Adjourned Meeting. If any shareholders meeting is adjourned
to a different time, or place, notice need not be given of the new date, time,
and place, if the new date, time, and place is announced at the meeting before
adjournment. But if a new record date for the adjourned meeting is fixed or must
be fixed in accordance with law or these Bylaws, then notice of the adjourned
meeting shall be given to those persons who are shareholders as of the new
record date and who are entitled to such notice pursuant to Section 3.03(a)
above.
(c) Waiver of Notice. Any shareholder may waive notice of a
meeting (or any notice of any other action required to be given by the Arizona
Business Corporation Act, the corporation's Articles, or these Bylaws), at any
time before, during, or after the meeting or other action, by a writing signed
by the shareholder entitled to the notice. Each such waiver shall be delivered
to the corporation for inclusion in the minutes or filing with the corporate
records. Under certain circumstances, a shareholder's attendance at a meeting
may constitute a waiver of notice, unless the shareholder takes certain actions
to preserve his/her objections as described in the Arizona Business Corporation
Act.
(d) Contents of Notice. The notice of each special
shareholders' meeting shall include a description of the purpose or purposes for
which the meeting is called. Except as required by law, this Section 3.03(d), or
the corporation's Articles, the notice of an annual shareholders' meeting need
not include a description of the purpose or purposes for which the meeting is
called.
3.04. Fixing of Record Date. For the purpose of determining
shareholders of any voting group entitled to notice of or to vote at any meeting
of shareholders, or shareholders entitled to receive any distribution or
dividend, or in order to make a determination of shareholders for any other
proper purpose, the Board of Directors may fix in advance a date as the record
date. Such record date shall not be more than seventy (70) days prior to the
date on which the particular action requiring such determination of shareholders
is to be taken. If no record date is so fixed by the Board of Directors, the
record date for the determination of shareholders shall be as provided in the
Arizona Business Corporation Act.
When a determination of shareholders entitled to notice of or to
vote at any meeting of shareholders has been made as provided in this Section,
such determination shall apply to any
2
<PAGE> 8
adjournment thereof, unless the Board of Directors fixes a new record date,
which it must do if the meeting is adjourned to a date more than one hundred
twenty (120) days after the date fixed for the original meeting.
3.05. Shareholder List. The corporation shall make a complete record
of the shareholders entitled to notice of each meeting of shareholders thereof,
arranged in alphabetical order, listing the address and the number of shares
held by each. The list shall be arranged by voting group and within each voting
group by class or series of shares. The shareholder list shall be available for
inspection by any shareholder, beginning two (2) business days after notice of
the meeting is given for which the list was prepared and continuing through the
meeting. The list shall be available at the corporation's principal office or at
another place identified in the meeting notice in the city where the meeting is
to be held. Failure to comply with this section shall not affect the validity of
any action taken at the meeting.
3.06. Shareholder Quorum and Voting Requirements.
(a) If the Articles or the Arizona Business Corporation Act
provide for voting by a single voting group on a matter, action on that matter
is taken when voted upon by that voting group.
(b) If the Articles or the Arizona Business Corporation Act
provide for voting by two (2) or more voting groups on a matter, action on that
matter is taken only when voted upon by each of those voting groups counted
separately.
(c) Shares entitled to vote as a separate voting group may take
action on a matter at a meeting only if a quorum of those shares exists with
respect to that matter. Unless the Articles or the Arizona Business Corporation
Act provide otherwise, a majority of the votes entitled to be cast on the matter
by the voting group constitutes a quorum of that voting group for action on that
matter.
(d) Once a share is represented for any purpose at a meeting,
it is deemed present for quorum purposes for the remainder of the meeting and
for any adjournment of that meeting, unless a new record date is or must be set
for that adjourned meeting.
(e) If a quorum exists, action on a matter (other than the
election of directors) by a voting group is approved if the votes cast within
the voting group favoring the action exceed the votes cast opposing the action,
unless the Articles or the Arizona Business Corporation Act require a greater
number of affirmative votes.
(f) Voting will be by ballot on any question as to which any
person demands a ballot vote prior to the time the voting begins entitled to
vote on such question; otherwise, a voice vote will suffice. No ballot or change
of vote will be accepted after the polls have been declared closed following the
ending of the announced time for voting.
3.07. Manner of Bringing Business Before Meetings.
(a) At any annual or special meeting of shareholders only such
business shall be conducted as shall have been properly brought before the
meeting. In order to be properly brought before the meeting, such business must
be a proper subject for shareholder action and must have been (i) specified in
the written notice of the meeting (or any supplement thereto) given to
shareholders who were shareholders on the record date for such meeting by or at
the direction of the Board of Directors, (ii) brought before the meeting at the
direction of the Board of Directors or the Chairman of the meeting, selected as
provided in Section 3.12 hereof, or (iii) specified in a written notice given by
or on behalf of
3
<PAGE> 9
a shareholder who was a shareholder on the record date for such meeting
entitled to vote thereat or a duly authorized proxy for such shareholder, in
accordance with Section 3.07(b) and (c) hereof.
(b) A shareholder notice referred to in Section 3.07(a)(iii) hereof must
be delivered personally to, or mailed to and received at, the principal
executive office of the corporation, addressed to the attention of the
Secretary, not more than ten (10) days after the date of the initial notice
referred to in Section 3.07(a)(i) hereof, in the case of business to be brought
before a special meeting of shareholders, and not less than thirty (30) days
prior to the anniversary date of the initial notice referred to in Section
3.07(a)(i) hereof with respect to the previous year's annual meeting, in the
case of business to be brought before an annual meeting of shareholders.
(c) A shareholder notice referred to in Section 3.07(a)(iii) hereof
shall set forth:
(i) a full description of each item of business proposed to be
brought before the meeting and the reasons for conducting such business at such
meeting;
(ii) the name and address of the person proposing to bring such
business before the meeting;
(iii) the class and number of shares held of record, held
beneficially, and represented by proxy by such person as of the record date for
the meeting, if such date has been made publicly available, or as of a date not
later than thirty (30) days prior to the delivery of the initial notice referred
to in Section 3.07(a)(i) hereof, if the record date has not been made publicly
available;
(iv) if any item of business involves a nomination for director,
all information regarding each such nominee that would be required to be set
forth in a definitive proxy statement filed with the Securities and Exchange
Commission pursuant to Section 14 of the Securities Exchange Act of 1934, as
amended, or any successor thereto, and the written consent of each such nominee
to serve if elected;
(v) any material interest of such shareholder in the specified
business;
(vi) whether or not such shareholder is a member of any
partnership, limited partnership, syndicate, or other group pursuant to any
agreement, arrangement, relationship, understanding, or otherwise, whether or
not in writing, organized in whole or in part for the purpose of acquiring,
owning, or voting shares of the corporation; and
(vii) all other information that would be required to be filed
with the Securities and Exchange Commission, if, with respect to the business
proposed to be brought before the meeting, the person proposing such business
was a participant in a solicitation subject to Section 14 of the Securities
Exchange Act of 1934, as amended, or any successor thereto.
No business shall be brought before any meeting of the shareholders of the
corporation otherwise than as provided in the Section 3.07.
(d) Notwithstanding the provisions of this Section 3.07, the Board
of Directors shall not be obligated to include information as to any
shareholder nominee for director or any other shareholder proposal in any
proxy statements or other communication sent to shareholders.
(e) The Chairman of the meeting may, if the facts warrant, determine
that any proposed item of business was not brought before the meeting in
accordance with the provisions of this Section 3.07, and if he or she should so
determine, he or she shall so declare to the meeting and the defective item of
business shall be disregarded.
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3.08. Proxies. At all meetings of shareholders, a shareholder may
vote in person or by proxy duly executed in writing by the shareholder or the
shareholder's duly authorized attorney-in-fact. Such proxy shall comply with
law and shall be filed with the Secretary of the corporation or other person
authorized to tabulate votes before or at the time of the meeting. No proxy
shall be valid after eleven (11) months from the date of its execution unless
otherwise provided in the proxy. The burden of proving the validity of any
undated, irrevocable, or otherwise contested proxy at a meeting of the
shareholders will rest with the person seeking to exercise the same. A
facsimile appearing to have been transmitted by a shareholder or by such
shareholder's duly authorized attorney-in-fact may be accepted as a
sufficiently written and executed proxy.
3.09. Voting of Shares. Unless otherwise provided in the Articles
or the Arizona Business Corporation Act, each outstanding share entitled to
vote shall be entitled to one (1) vote upon each matter submitted to a vote at
a meeting of shareholders.
3.10. Voting for Directors. Unless otherwise provided in the
Articles, directors are elected by a plurality of the votes cast by the shares
entitled to vote in the election at a meeting at which a quorum is present at
the time of such vote. As provided by law, shareholders shall be entitled to
cumulative voting in the election of directors.
3.11. Election Inspectors. The Board of Directors, in advance of
any meeting of the shareholders, may appoint an election inspector or
inspectors to act at such meeting (and at any adjournment thereof). If an
election inspector or inspectors are not so appointed, the chairman of the
meeting may, or upon request of any person entitled to vote at the meeting
will, make such appointment. If any person appointed as an inspector fails to
appear or to act, a substitute may be appointed by the chairman of the meeting.
If appointed, the election inspector or inspectors (acting through a majority
of them if there be more than one) will determine the number of shares
outstanding, the authenticity, validity, and effect of proxies, the credentials
of persons purporting to be shareholders or persons named or referred to in
proxies, and the number of shares represented at the meeting in person and by
proxy; will receive and count votes, ballots, and consents and announce the
results thereof; will hear and determine all challenges and questions
pertaining to proxies and voting; and, in general, will perform such acts as
may be proper to conduct elections and voting with complete fairness to all
shareholders. No such election inspector need be a shareholder of the
corporation.
3.12. Organization and Conduct of Meetings. Each meeting of the
shareholders will be called to order and thereafter chaired by the Chairman of
the Board of Directors if there is one, or, if not, or if the Chairman of the
Board is absent or so requests, then by the President, or if both the Chairman
of the Board and the President are unavailable, then by such other officer of
the corporation or such shareholder as may be appointed by the Board of
Directors. The corporation's Secretary or in his or her absence, an Assistant
Secretary will act as secretary of each meeting of the shareholders. If neither
the Secretary nor an Assistant Secretary is in attendance, the chairman of the
meeting may appoint any person (whether a shareholder or not) to act as
secretary for the meeting. After calling a meeting to order, the chairman
thereof may require the registration of all shareholders intending to vote in
person and the filing of all proxies with the election inspector or inspectors,
if one or more have been appointed (or, if not, with the secretary of the
meeting). After the announced time for such filing of proxies has ended, no
further proxies or changes, substitutions, or revocations of proxies will be
accepted. If directors are to be elected, a tabulation of the proxies so filed
will, if any person entitled to vote in such election so requests, be announced
at the meeting (or adjournment thereof) prior to the closing of the election
polls. Absent a showing of bad faith on his or her part, the chairman of a
meeting will, among other things, have absolute authority to fix the period of
time allowed for the registration of shareholders and the filing of proxies, to
determine the order of business to be conducted at such meeting, and to
establish reasonable
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rules for expediting the business of the meeting and preserving the orderly
conduct thereof (including any informal, or question and answer portions
thereof).
3.13. Shareholder Approval or Ratification. The Board of Directors may
submit any contract or act for approval or ratification of the shareholders at a
duly constituted meeting of the shareholders. Except as otherwise required by
law, if any contract or act so submitted is approved or ratified by a majority
of the votes cast thereon at such meeting, the same will be valid and as binding
upon the corporation and all of its shareholders as it would be if it were the
act of its shareholders.
3.14. Informalities and Irregularities. All informalities or irregularities
in any call or notice of a meeting of the shareholders or in the areas of
credentials, proxies, quorums, voting, and similar matters, will be deemed
waived if no objection is made at the meeting.
3.15. Shareholder Action by Written Consent. Any action required or
permitted to be taken at a meeting of the shareholders may be taken without a
meeting if one (1) or more consents in writing, setting forth the action so
taken, shall be signed by all of the shareholders entitled to vote with respect
to the subject matter thereof. The consents shall be delivered to the
corporation for inclusion in the minutes or filing with the corporate record.
Action taken by consent is effective when the last shareholder signs the
consent, unless the consent specifies a different effective date, except that
if, by law, the action to be taken requires that notice be given to shareholders
who are not entitled to vote on the matter, the effective date shall not be
prior to ten (10) days after the corporation shall give such shareholders
written notice of the proposed action, which notice shall contain or be
accompanied by the same material that would have been required if a formal
meeting had been called to consider the action. Consent signed under this
section has the effect of a meeting vote and may be described as such in any
document.
V. BOARD OF DIRECTORS
4.01. General Powers. All corporate powers shall be exercised by or under
the authority of, and the business and affairs of the corporation shall be
managed under the direction of, the Board of Directors.
4.02. Number, Tenure, and Qualification of Directors. Unless otherwise
provided in the Articles of Incorporation, the authorized number of directors
shall be neither less than five (5) nor more than nine (9). The number of
directors in office from time to time shall be within the limits specified
above, as prescribed from time to time by resolution adopted by either the
shareholders or the Board of Directors. The Board of Directors shall consist of
Class A Directors and Class B Directors. The Class A directors shall be elected
for a term of two years at the annual meeting of shareholders of the corporation
held in every odd numbered year. The Class B directors shall be elected for a
term of two years at the annual meeting of shareholders of the corporation held
in every even numbered year. When an uneven number of directors has been set by
the Board of Directors, there shall be an even number of Class A directors and
Class B directors. All directors of the corporation shall be shareholders of the
corporation and no person who has attained the age of seventy (70) years shall
be eligible for election or appointment to the Board of Directors.
4.03. Regular Meetings of the Board of Directors. A regular annual meeting
of the Board of Directors is to be held as soon as practicable after the
adjournment of each annual meeting of the shareholders, either at the place of
the shareholders meeting or at such other place as the directors elected at the
shareholders meeting may have been informed of at or prior to the time of their
election. Additional regular meetings may be held at regular intervals at such
places and at such times as the Board of Directors may determine.
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4.04. Special Meetings of the Board of Directors. Special
meetings of the Board of Directors may be held whenever and wherever called for
by the Chairman of the Board or, at the request of three members of the Board of
Directors, by the Secretary.
4.05. Notice of, and Waiver of Notice for, Directors Meetings. No
notice need be given of regular meetings of the Board of Directors. Notice of
the time and place of any special directors meeting shall be given at least 48
hours prior thereto. Notice shall be given in accordance with and shall be
deemed to be effective at the time and in the manner described in Arizona
Revised Statutes Section 10-141. Any director may waive notice of any meeting
and any adjournment thereof at any time before, during, or after it is held.
Except as provided in the next sentence below, the waiver must be in writing,
signed by the director entitled to the notice, and filed with the minutes or
corporate records. The attendance of a director at or participation of a
director in a meeting shall constitute a waiver of notice of such meeting,
unless the director at the beginning of the meeting (or promptly upon his/her
arrival) objects to holding the meeting or transacting business at the meeting,
and does not thereafter vote for or assent to action taken at the meeting.
4.06. Director Quorum. A majority of the number of directors
prescribed according to Section 4.02 above, or if no number is so prescribed,
the number in office immediately before the meeting begins, shall constitute a
quorum for the transaction of business at any meeting of the Board of
Directors, unless the Articles require a greater number.
4.07. Directors, Manner of Acting.
(a) If a quorum is present when a vote is taken, the
affirmative vote of a majority of the directors present shall be the act of the
Board of Directors unless the Articles require a greater percentage.
(b) Unless the Articles provide otherwise, any or all
directors may participate in a regular or special meeting by, or conduct the
meeting through the use of, any means of communication by which all directors
participating may simultaneously hear each other during the meeting. A director
participating in a meeting by this means is deemed to be present in person at
the meeting.
(c) A director who is present at a meeting of the Board of
Directors or a committee of the Board of Directors when corporate action is
taken is deemed to have assented to the action taken unless: (1) the director
objects at the beginning of the meeting (or promptly upon his/her arrival) to
holding it or transacting business at the meeting; or (2) his/her dissent or
abstention from the action taken is entered in the minutes of the meeting; or
(3) he/she delivers written notice of his/her dissent or abstention to the
presiding officer of the meeting before its adjournment or to the corporation
before 5:00 p.m. on the next business day after the meeting. The right of
dissent or abstention is not available to a director who votes in favor of the
action taken.
4.08. Director Action Without a Meeting. Unless the Articles
provide otherwise, any action required or permitted to be taken by the Board of
Directors at a meeting may be taken without a meeting if the action is taken by
unanimous written consent of the Board of Directors as evidenced by one (1) or
more written consents describing the action taken, signed by each director and
filed with the minutes or corporate records. Action taken by consent is
effective when the last director signs the consent, unless the consent
specifies a different effective date. A signed consent has the effect of a
meeting vote and may be described as such in any document.
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4.09. Removal of Directors by Shareholders. The shareholders may
remove one (1) or more directors at a meeting called for that purpose if notice
has been given that a purpose of the meeting is such removal. The removal may
be with or without cause unless the Articles provide that directors may only be
removed with cause. If a director is elected by a voting group of shareholders,
only the shareholders of that voting group may participate in a shareholder
vote to remove him. If less than the entire Board of Directors is to be
removed, a director may not be removed if the number of votes sufficient to
elect the director under cumulative voting is voted against the director's
removal.
4.10. Board of Director Vacancies.
(a) Unless the Articles provide otherwise, if a vacancy occurs
on the Board of Directors, including a vacancy resulting from an increase in
the number of directors, either the shareholders or the Board of Directors may
fill the vacancy.
(b) If the vacant office was held by a director elected by a
voting group of shareholders, only the holders of shares of that voting group
are entitled to vote to fill the vacancy if it is filled by the shareholders.
(c) A vacancy that will occur at a specific later date (by
reason of resignation effective at a later date) may be filled before the
vacancy occurs, but the new director may not take office until the vacancy
occurs.
(d) The term of a director elected to fill a vacancy expires at
the next shareholders meeting at which directors are elected.
4.11. Director Compensation. Unless otherwise provided in the Articles
by resolution of the Board of Directors, each director may be paid his/her
expenses, if any, of attendance at each meeting of the Board of Directors or
any committee thereof, and may be paid a stated salary as director or a fixed
sum for attendance at each meeting of the Board of Directors or any committee
thereof, or both. No such payment shall preclude any director from serving the
corporation in any capacity and receiving compensation therefor.
4.12. Director Committees.
(a) Creation of Committees. In addition to the committees set
forth in this Article IV and unless the Articles provide otherwise, the Board
of Directors may create one (1) or more other committees and appoint members of
the Board of Directors to serve on them. Each committee shall have one (1) or
more members, who serve at the pleasure of the Board of Directors.
(b) Selection of Members. The creation of a committee and
appointment of members to it shall be approved by the greater of (1) a majority
of all the directors in office when the action is taken or (2) the number of
directors required by the Articles to take such action.
(c) Required Procedures. Sections 4.03 through 4.08 of this
Article IV, which govern meetings, action without meetings, notice and waiver
of notice, and quorum and voting requirements of the Board of Directors, apply
to committees and their members.
(d) Authority. Unless limited by the Articles, each committee
may exercise those aspects of the authority of the Board of Directors which the
Board of Directors confers upon such committee in the resolution creating the
committee, provided, however, that a committee may not: (1) authorize
distributions; (2) approve or propose to shareholders action that requires
shareholder approval
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under the Arizona Business Corporation Act; (3) fill vacancies on the Board of
Directors or on any of its committees; (4) amend the Articles of Incorporation
without shareholder action as provided by law; (5) adopt, amend or repeal these
Bylaws; (6) approve a plan of merger not requiring shareholder approval; (7)
authorize or approve reacquisition of shares, except according to a formula or
method prescribed by the Board of Directors; (8) authorize or approve the
issuance or sale or contract for sale of shares or determine the designation
and relative rights, preferences, and limitations of a class or series of
shares, except within limits specifically prescribed by the Board of Directors;
or (9) fix the compensation of directors for serving on the Board of Directors
or any committee of the Board of Directors.
4.13. Executive Committee. The Board of Directors shall appoint an
executive committee, consisting of at least three directors, including the
Chairman of the Board, who shall be the chairman of the Committee. The
committee shall have and exercise all lawfully delegable powers of the Board of
Directors while the Board is not in session, except as such delegation of
powers may be limited from time to time by resolution of the Board of
Directors.
4.14. Audit Committee. The Board of Directors shall appoint an audit
committee, consisting of at least two directors, provided, however, that
directors who are also officers of the corporation shall not be eligible for
membership on the committee. The audit committee shall:
(a) recommend the auditors;
(b) review the overall scope of the audit and the final
opinion of the external auditors;
(c) review the financial and accounting policies and
procedures used by the corporation;
(d) approve the organization and procedures of the internal
accounting and auditing departments;
(e) prepare a report of the Board of Directors;
(f) assure compliance with ethical standards.
4.15. Compensation and Nominating Committee. The Board of Directors
shall appoint a compensation and benefits committee, consisting of at least two
non-officer directors. The committee shall recommend to the Board candidates
for membership on the Board of Directors, and shall be empowered to make
recommendations to the Board of Directors concerning the following:
a) employees' salaries and bonuses;
b) the company's Restricted Stock Plan;
c) the company's Incentive Bonus Plan;
d) all other company compensation and benefit plans.
4.16. Retirement Plan Administrative Committee. The Board of
Directors shall appoint an administrative committee consisting of three
individuals to establish and maintain the corporation's funding policy for its
Retirement Plan and Trust for Salaried Employees, the corporation's 401(k) Plan
and to act as fiduciary thereunder. Individuals may be eligible for membership
on the administrative committee without being directors or officers of the
corporation.
4.17. Director Resignations. Any director or committee member may
resign from his or her office at any time by written notice delivered to the
Board of Directors, the Chairman of the Board, or the corporation at its known
place of business. Any such resignation will be effective upon its receipt
unless some later time is therein fixed, and then from that time. The
acceptance of a resignation will not be required to make it effective.
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V. OFFICERS
5.01. Number of Officers. The officers of the corporation shall be a
President, a Secretary, and a Treasurer, each of whom shall be appointed by the
Board of Directors. Such other officers and assistant officers as may be deemed
necessary, including any Vice Presidents, may be appointed by the Board of
Directors. If specifically authorized by the Board of Directors, an officer may
appoint one (1) or more other officers or assistant officers. The same
individual may simultaneously hold more than one (1) office in the corporation.
5.02. Appointment and Term of Office. The officers of the corporation
shall be appointed by the Board of Directors for a term as determined by the
Board of Directors. The designation of a specified term grants to the officer
no contract rights, and the Board of Directors can remove the officer at any
time prior to the termination of such term. If no term is specified, an officer
of the corporation shall hold office until he or she resigns, dies, or until he
or she is removed in the manner provided by law or in Section 5.03 of this
Article V. The regular election or appointment of officers will take place at
each annual meeting of the Board of Directors, but elections of officers may be
held at any other meeting of the Board.
5.03. Resignation and Removal of Officers. An officer may resign at
any time by delivering written notice to the corporation at its known place of
business. A resignation is effective when the notice is delivered unless the
notice specifies a later effective date or event. Any officer may be removed by
the Board of Directors at any time, with or without cause. Such removal shall
be without prejudice to the contract rights, if any, of the person so removed.
Appointment of an officer shall not of itself create contract rights.
5.04. Duties of Officers. Officers of the corporation shall have
authority to perform such duties as may be prescribed from time to time by law,
in these Bylaws, or by the Board of Directors, the President, or the superior
officer of any such officer. Each officer of the corporation (in the order
designated herein or by the Board) will be vested with all of the powers and
charged with all of the duties of his or her superior officer in the event of
such superior officer's absence, death, or disability.
5.05. Bonds and Other Requirements. The Board of Directors may require
any officer to give a bond to the corporation (with sufficient surety and
conditioned for the faithful performance of the duties of his or her office)
and to comply with such other conditions as may from time to time be required
of him or her by the Board of Directors.
5.06. Chairman of The Board. The Chairman shall be appointed by the
Board of Directors and shall preside at all meetings of the shareholders and of
the Board of Directors. He shall have such other powers and perform such other
duties as may be assigned to him by the Board of Directors. Unless he also
serves as the Chief Executive Officer, the Chairman shall not be considered an
employee of the corporation.
5.07. Chief Executive Officer. The Chief Executive Officer shall be
appointed by the Board of Directors and shall be responsible for the general
supervision of the business and property of the corporation. He shall possess
the same power as the president to sign all documents authorized by the Board of
Directors, unless restricted by law. In the absence of the Chairman, the Chief
Executive Officer shall preside at meetings of the shareholders and of the
Board. He shall have the power, subject to the authority of the Board of
Directors, to appoint and discharge all officers (except those required by
these bylaws to be appointed by the Board), employees, and agents; to define
their duties, and to fix their compensation, provided that any compensation
over $50,000 per year must first be approved by the Board. In the absence of
the Chairman, or the President, or both, the Chief Executive Officer shall
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undertake those duties and responsibilities, if so directed by the Board. The
Chief Executive Officer shall have such other powers and responsibilities as may
be assigned to him by the Board.
5.08. President. Unless otherwise specified by resolution of the Board of
Directors, the President, subject to the control of the Board of Directors,
shall supervise and control all of the business and affairs of the corporation
and the performance by all of its other officers of their respective duties and
in general shall perform all duties incident to the office of President and such
other duties as may be prescribed by the Board of Directors from time to time.
The President shall, when present, and in the absence of a Chairman of the Board
and the Chief Executive Officer, preside at all meetings of the shareholders and
of the Board of Directors. The President will be a proper officer to sign on
behalf of the corporation any deed, bill of sale, assignment, option, mortgage,
pledge, note, bond, evidence of indebtedness, application, consent (to service
of process or otherwise), agreement, indenture, contract, or other instrument,
except in each such case where the signing and execution thereof shall be
expressly delegated by the Board of Directors or by these Bylaws to some other
officer or agent of the corporation, or shall be required by law to be otherwise
signed or executed. The President may represent the corporation at any meeting
of the shareholders or members of any other corporation, association,
partnership, joint venture, or other entity in which the corporation then holds
shares of capital stock or has an interest, and may vote such shares of capital
stock or other interest in person or by proxy appointed by him or her, provided
that the Board of Directors may from time to time confer the foregoing authority
upon any other person or persons.
5.09. Chief Operating Officer. Unless otherwise specified by resolution of
the Board of Directors, the Chief Operating Officer, subject to control of the
Board of Directors, shall supervise and control all of the business and affairs
of the corporation and the performance by all of its other officers of their
respective duties and in general shall perform all duties incident to the office
of Chief Operating Officer and such other duties as may be prescribed by the
President or the Board of Directors from time to time. The Chief Operating
Officer shall, when present, and in the absence of the Chairman of the Board,
the Chief Executive Officer, and President, preside at all meetings of the
shareholders and of the Board of Directors. The Chief Operating Officer will be
a proper officer to sign on behalf of the corporation any deed, bill of sale,
assignment, option, mortgage, pledge, note, bond, evidence of indebtedness,
application, consent (to service of process or otherwise), agreement, indenture,
contract, or other instrument, except in each such case where the signing and
execution thereof shall be expressly delegated by the Board of Directors or by
these Bylaws to some other officer or agent of the corporation, or shall be
required by law to be otherwise signed or executed. The Chief Operating Officer
shall have such other powers and responsibilities as may be assigned to him by
the President or the Board of Directors.
5.10. The Vice President. If appointed, in the absence of the President or
in the event of his/her death or disability, the Vice President (or in the event
there be more than one Vice President, the Vice Presidents in the order
designated at the time of their election, or in the absence of any such
designation, then in the order of their appointment) shall perform the duties of
the President, and when so acting, shall have all the powers of and be subject
to all the restrictions upon the President. If there is no Vice President or in
the event of the death or disability of all Vice Presidents, then the Treasurer
shall perform such duties of the President in the event of his or her absence,
death, or disability. Each Vice President will be a proper officer to sign on
behalf of the corporation any deed, bill of sale, assignment, option, mortgage,
pledge, note, bond, evidence of indebtedness, application, consent (to service
of process or otherwise), agreement, indenture, contract, or other instrument,
except in each such case where the signing and execution thereof shall be
expressly delegated by the Board of Directors or by these Bylaws to some other
officer or agent of the corporation, or shall be required by law to be otherwise
signed or executed. Any Vice President may represent the corporation at any
meeting of the shareholders or members of any other corporation, association,
partnership, joint venture, or other entity in which the
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corporation then holds shares of capital stock or has an interest, and may vote
such shares of capital stock or other interest in person or by proxy appointed
by him or her, provided that the Board of Directors may from time to time confer
the foregoing authority upon any other person or persons. A Vice President shall
perform such other duties as from time to time may be assigned to him/her by the
President or by the Board of Directors.
5.11 The Secretary. The Secretary shall: (a) keep the minutes of the
proceedings of the shareholders and of the Board of Directors and any committee
of the Board of Directors and all unanimous written consents of the
shareholders, Board of Directors, and any committee of the Board of Directors in
one (1) or more books provided for that purpose; (b) see that all notices are
duly given in accordance with the provisions of these Bylaws or as required by
law; (c) be custodian of the corporate records and of any seal of the
corporation; (d) when requested or required, authenticate any records of the
corporation; (e) keep a register of the address of each shareholder which shall
be furnished to the Secretary by such shareholder; and (f) in general perform
all duties incident to the office of Secretary and such other duties as from
time to time may be assigned to him/her by the President or by the Board of
Directors. Except as may otherwise be specifically provided in a resolution of
the Board of Directors, the Secretary will be a proper officer to take charge of
the corporation's stock transfer books and to compile the voting record pursuant
to Section 3.05 above, and to impress the corporation's seal, if any, on any
instrument signed by the President, any Vice President, or any other duly
authorized person, and to attest to the same. In the absence of the Secretary, a
secretary pro tempore may be chosen by the directors or shareholders as
appropriate to perform the duties of the Secretary.
5.12. The Treasurer. The Treasurer shall: (a) have charge and custody of
and be responsible for all funds and securities of the corporation; (b) receive
and give receipts for moneys due and payable to the corporation from any source
whatsoever, and deposit all such moneys in the name of the corporation in such
bank, trust companies, or other depositories as shall be selected by the Board
of Directors or any proper officer; (c) keep full and accurate accounts of
receipts and disbursements in books and records of the corporation; and (d) in
general perform all of the duties incident to the office of Treasurer and such
other duties as from time to time may be assigned to him/her by the President or
by the Board of Directors. The Treasurer will render to the President, the
directors, and the shareholders at proper times and account of all his or her
transactions as Treasurer and of the financial condition of the corporation. The
Treasurer shall be responsible for preparing and filing such financial reports,
financial statements, and returns as may be required by law.
5.13. Assistant Secretaries and Assistant Treasurers. The Assistant
Secretaries and the Assistant Treasurers, when authorized by the Board of
Directors, may sign with the President or a Vice President certificates for
shares of the corporation, the issuance of which shall have been authorized by a
resolution of the Board of Directors. The Assistant Secretaries and Assistant
Treasurers, in general, shall perform such duties as shall be assigned to them
by the Secretary or the Treasurer, respectively, or by the President or the
Board of Directors.
5.14. Salaries. The salaries of the officers of the corporation may be
fixed from time to time by the Board of Directors or (except as to the
President's own) left to the discretion of the President. No officer will be
prevented from receiving a salary by reason of the fact that he or she is also a
director of the corporation.
5.15. Additional Appointments. In addition to the officers contemplated in
this Article V, the Board of Directors may appoint other agents of the
corporation with such authority to perform such duties as may be prescribed from
time to time by the Board of Directors.
VI. EXECUTION OF DOCUMENTS
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<PAGE> 18
6.01. Contracts, Etc. All contracts, conveyances, leases or other
corporate instruments shall be executed on behalf of the corporation by the
Chairman of the Board, by the President, the Executive Vice President, the Sr.
Vice President, or by such other officer or officers of the corporation to whom
the Chairman of the Board, the President or the Board of Directors may delegate
such authority, subject to the following:
(a) No loan greater than $1,000,000 shall be contracted on
behalf of the corporation unless authorized by the Board of Directors.
(b) No real property of the corporation may be sold for more
than $1,000,000, nor exchanged for other property valued at more than
$1,000,000 unless authorized by the Board of Directors.
(c) A capital expenditure in excess of $1,000,000 for any one
purpose or project shall be authorized by the Board of Directors.
(d) In matters of auction bidding for property or property
rights, no bids totalling over $1,000,000 per auction shall be made without the
authorization of the Board of Directors.
The Chairman or President shall report to the Board the total capital
expenditures, the total dollar amount of sales or exchanges, and the total
dollar amount of auction bids made, which did not require Board approval.
6.02. Proxies. Unless otherwise provided by resolution of the Board of
Directors, the Chairman of the Board may in the name and on behalf of the
corporation appoint an attorney or attorneys, agent or agents of the
corporation (who may be or include himself or herself), in the name and on
behalf of the corporation to cast the votes which the corporation may be
entitled to cast as a shareholder or otherwise in any other corporation any of
whose shares or other securities may be held by the corporation, at meetings of
the holders of the shares or other securities of such other corporation, or to
consent in writing to any action by such other corporation, may instruct the
person or persons so appointed as to the manner of casting such votes or giving
such consent, and may execute or cause to be executed in the name of, on behalf
of, and under the corporate seal of, the corporation all written proxies or
other instruments as may be necessary or proper to evidence the appointment of
such attorneys and agents.
VII. CERTIFICATES FOR SHARES AND THEIR TRANSFER
7.01. Certificates for Shares.
(a) Content. Certificates representing shares of the
corporation shall, at a minimum, state on their face the name of the issuing
corporation and that it is formed under the laws of the State of Arizona, the
name of the person to whom issued, and the number and class of shares and the
designation of the series, if any, the certificate represents. Such
certificates shall be signed (either manually or by facsimile to the extent
allowable by law) by one or more officers of the corporation, as determined by
the Board of Directors, or, if no such determination is made, by any of the
Chairman of the Board (if any), the President, any Vice President, the
Secretary, or the Treasurer of the corporation, and may be sealed with a
corporate seal or a facsimile thereof. Each certificate for shares shall be
consecutively numbered or otherwise identified and will exhibit such
information as may be required by law. If a supply of unissued certificates
bearing the facsimile signature of a person remains when that person ceases to
hold the office of the corporation indicated on such certificates, they may
still be countersigned, registered,
13
<PAGE> 19
issued, and delivered by the corporation's transfer agent and/or registrar
thereafter, as though such person had continued to hold the office indicated on
such certificate.
(b) Legend as to Class or Series. If the corporation is authorized to
issue different classes of shares or different series within a class, the
designations, relative rights, preferences, and limitations applicable to each
class and the variations in rights, preferences, and limitations determined for
each series (and the authority of the Board of Directors to determine variations
for future series) shall be summarized on the front or back of each certificate.
Alternatively, each certificate may state conspicuously on its front or back
that the corporation will furnish the shareholder this information on request in
writing and without charge.
(c) Shareholder List. The name and address of the person to whom
shares are issued, with the number of shares and date of issue, shall be entered
on the stock transfer books of the corporation.
(d) Lost Certificates. In the event of the loss, theft, or destruction
of any certificate representing shares of the corporation or of any predecessor
corporation, the corporation may issue (or, in the case of any such shares as to
which a transfer agent and/or registrar have been appointed, may direct such
transfer agent and/or registrar to countersign, register, and issue) a new
certificate, and cause the same to be delivered to the registered owner of the
shares represented thereby; provided that such owner shall have submitted such
evidence showing the circumstances of the alleged loss, theft, or destruction,
and his, her, or its ownership of the certificate, as the corporation considers
satisfactory, together with any other facts that the corporation considers
pertinent; and further provided that, if so required by the corporation, the
owner shall provide a bond or other indemnity in form and amount satisfactory to
the corporation (and to its transfer agent and/or registrar, if applicable).
7.02. Registration of the Transfer of Shares. Registration of the transfer
of shares of the corporation shall be made only on the stock transfer books of
the corporation. In order to register a transfer, the record owner shall
surrender the shares to the corporation for cancellation, properly endorsed by
the appropriate person or persons with reasonable assurances that the
endorsements are genuine and effective. Unless the corporation has established a
procedure by which a beneficial owner of shares held by a nominee is to be
recognized by the corporation as the owner, the corporation will be entitled to
treat the registered owner of any share of the capital stock of the corporation
as the absolute owner thereof and, accordingly, will not be bound to recognize
any beneficial, equitable, or other claim to, or interest in, such share on the
part of any other person, whether or not it has notice thereof, except as may
expressly be provided by applicable law.
7.03. Shares Without Certificates. The Board of Directors may authorize the
issuance of uncertificated shares by the corporation and may prescribe
procedures for the issuance and registration of transfer thereof and with
respect to such other matters as the Board of Directors shall deem necessary or
appropriate.
VIII. INDEMNIFICATION OF DIRECTORS AND OFFICERS
8.01. Indemnification. Unless otherwise provided by these bylaws, the
corporation shall hold harmless and indemnify each of its directors and officers
("indemnities") to the fullest extent permitted by Arizona law.
8.02. Effect of Repeal. No repeal or amendment of this Article shall
diminish indemnities' right to indemnification for acts taken before the date of
repeal or amendment.
14
<PAGE> 20
IX. DISTRIBUTIONS
9.01. Distributions. Subject to such restrictions or requirements as may
be imposed by applicable law or the corporation's Articles or as may otherwise
be binding upon the corporation, the Board of Directors may from time to time
declare, and the corporation may pay or make, dividends or other distributions
to its shareholders.
X. CORPORATE SEAL
10.01. Corporate Seal. The Board of Directors may provide for a corporate
seal of the corporation that will have inscribed thereon any designation
including the name of the corporation, Arizona as the state of incorporation,
the year of incorporation, and the words "Corporate Seal."
XI. EXEMPTION
11.02. Exemption From The Arizona Corporate Takeover Act. The
corporation, pursuant to the provisions of ARS 10-1211(A)(2) and 10-1223(A)(2),
and pursuant to the approval of the shareholders on May 10, 1991, has chosen to
exempt itself from the provisions of ARS 10-1211 through 10-1223, concerning
Control Share Acquisitions and Business Combinations. This amendment does not
apply to any "control share acquisition" as defined in ARS 10-1201(9) made on
or before May 10, 1991, or to any "business combination" as defined in ARS
10-1201(10) whose "share acquisition date" as defined in ARS 10-1201(14) is on
or before May 10, 1991.
XII. AMENDMENTS
12.01. Amendments. The corporation's Board of Directors may amend or
repeal the corporation's Bylaws unless:
(a) the Articles or the Arizona Business Corporation Act reserve
this power exclusively to the shareholders in whole or part; or
(b) the shareholders in adopting, amending, or repealing a
particular Bylaw provide expressly that the Board of Directors may not amend or
repeal that Bylaw.
The corporation's shareholders may amend or repeal the corporation's
Bylaws even though the Bylaws may also be amended or repealed by its Board of
Directors.
I certify that the foregoing is a true and correct copy of the bylaws of New
Mexico and Arizona Land Company as last amended.
DATED as of this 16th day of May, 1997.
/s/
- ----------------------------------
Secretary
15
<PAGE> 1
EXHIBIT 21
NZ SUBSIDIARIES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
SUBSIDIARY OF REGISTRANT STATE OF INCORPORATION DBA: NAMES
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
NZ Development Corporation Arizona NZ Development Corporation
- ------------------------------------------------------------------------------------------------------
NZ Properties, Inc. Arizona NZ Properties, Inc., Brentwood
Gardens Apartments, Apple Ridge
Apartments, Montana Meadows
Apartments, Wildwood Apartments
- ------------------------------------------------------------------------------------------------------
NZU Inc. New Mexico NZU Inc.
- ------------------------------------------------------------------------------------------------------
Bridge Financial Corporation Arizona Bridge Financial Corporation
- ------------------------------------------------------------------------------------------------------
Great Vacations International, Inc. Arizona Great Vacations International,
Inc., Seven Canyons of Sedona
- ------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
New Mexico and Arizona Land Company:
We consent to incorporation by reference in the Registration Statement (No.
33-44017) on Form S-8 of New Mexico and Arizona Land Company of our report dated
February 20, 1998, relating to the consolidated balance sheets of New Mexico and
Arizona Land Company and its subsidiaries as of December 31, 1997 and 1996 and
the related consolidated statements of income, cash flows and shareholders'
equity and related financial statement schedules for each of the years in the
three-year period ended December 31, 1997 which appears in the December 31, 1997
annual report on Form 10-K of New Mexico and Arizona Land Company.
Phoenix, Arizona
March 24, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 6,016
<SECURITIES> 0
<RECEIVABLES> 15,655
<ALLOWANCES> 275
<INVENTORY> 0
<CURRENT-ASSETS> 13,265
<PP&E> 52,025
<DEPRECIATION> 4,761
<TOTAL-ASSETS> 69,511
<CURRENT-LIABILITIES> 8,104
<BONDS> 12,503
0
0
<COMMON> 24,572
<OTHER-SE> 18,894
<TOTAL-LIABILITY-AND-EQUITY> 69,511
<SALES> 12,005
<TOTAL-REVENUES> 16,904
<CGS> 7,319
<TOTAL-COSTS> 12,133
<OTHER-EXPENSES> 883
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,020
<INCOME-PRETAX> 3,888
<INCOME-TAX> 1,548
<INCOME-CONTINUING> 2,340
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,340
<EPS-PRIMARY> 0.69
<EPS-DILUTED> 0.69
</TABLE>
